Issue 33: Swift Justice

Welcome to This Week in GRC, MBK Search's weekly digest of the news and views in governance, risk, and compliance.

The Opening Bell:

The only surprising part about the verdict was the speed in which it was delivered.

Sam Bankman-Fried was convicted yesterday in federal court on charges of wire fraud, conspiracy and money laundering related to the collapse of cryptocurrency exchange FTX.

Just over a year ago, the 31-year-old Bankman-Fried was considered a rising star in cryptocurrency, with his exchange FTX valued at $32 billion. But in November 2022, FTX declared bankruptcy along with affiliated trading firm Alameda Research. Bankman-Fried was arrested the next month.

Prosecutors accused Bankman-Fried of misusing FTX customer funds to cover losses at Alameda Research. Four former colleagues who pleaded guilty to fraud charges testified against him during the trial.?

In August, Judge Lewis Kaplan revoked Bankman-Fried's bail and ordered him jailed after prosecutors raised concerns he was trying to influence witness testimony. Bankman-Fried now faces the possibility of a lengthy prison sentence.

The jury took less than five hours to reach a verdict, "unusually swift" for complex white-collar cases, Bloomberg noted.

"By comparison, jurors took eight days before finding Theranos Inc. founder Elizabeth Holmes guilty of fraud in January 2022 after a four-month trial. A jury also took eight days to convict WorldCom Inc. Chief Executive Officer Bernie Ebbers of accounting fraud after hearing five weeks of testimony in 2005."

Beyond Bankman-Fried and FTX comes the larger question of what's next for crypto regulation. Where other countries have moved , how the U.S. responds will be intriguing.

SEC?rule changes are driving a race for compliance talent

“There will be a point when the regulation gains teeth, when notices, fines or adverse actions start to?come?down. Then some firms will go: ‘Oh crap! We’ve really?gotta?move?—?they're serious this time!’”

Enhanced regulation of private funds is fueling competition for compliance professionals. In the latest edition of our webcast, MBK Talks, marketing director Michael Oliver interviewed MBK Search’s chief executive officer Spencer Knibbe, to?find?out how firms should prepare for the new regime. READ MORE .

??? President Biden issued a sweeping executive order establishing a national framework for the development and use of AI technology in the United States. For chief risk officers and chief compliance officers in both the public and private sectors, there is much to consider.

Here are ten essential takeaways to guide your thinking. READ MORE .

?? New rules around transaction reporting for debt securities go into effect next week. MBK Search looks at what the five key changes are. READ MORE

In this episode of MBK Talks, we'll share our sourcing and qualifying secrets to help TA teams in financial services be more efficient and effective in their day-to-day jobs.

When: Tuesday November 14, 12:00 EST

Where: LinkedIn Live – Register Here

Court Blocks SEC Rule Requiring More Disclosure on Share Buybacks

A federal appeals court ruled against a Securities and Exchange Commission plan to require more disclosure about stock buybacks.

The ruling responded to a lawsuit filed in May by the U.S. Chamber of Commerce and two Texas business groups. The groups challenged the SEC's new requirements for reporting share repurchases.

A three-judge panel on the Fifth Circuit Court of Appeals decided the SEC did not adequately explain the costs and benefits of the new rule. The judges agreed the rulemaking process was flawed. READ MORE .

New York Updates Cybersecurity Rules with Stricter Oversight and Ransom Requirements

New York's financial regulator released significant updates to its cybersecurity rules on Wednesday, adding strict requirements around board oversight and ransom payments that go beyond federal measures.

The new regulations place chief information security officers as responsible for compliance and enforcing internal policies.

Boards of directors or senior committees must oversee cyber risk management. They must have appropriate expertise in cybersecurity. Directors must approve cybersecurity programs and ensure sufficient resources.

Companies now also ace significant requirements around ransom payments. Firms must report any ransom payment to hackers within 24 hours.

Other additions include stronger requirements for cybersecurity technologies like multifactor authentication. Rules state cybersecurity must be part of business continuity planning, and safety measures such as data backups must be regularly tested. READ MORE.

Kalshi Sues CFTC After Rejection of Congressional Election Contracts

Prediction market KalshiEX filed a lawsuit against the Commodity Futures Trading Commission (CFTC) on Wednesday, claiming the regulator exceeded its authority by rejecting proposed derivatives contracts betting on congressional election outcomes.

In June, Kalshi sought approval to list contracts letting users bet on which party will control the House and Senate. The CFTC prohibited the contracts in September, concerned they involved illegal gambling and were not in the public interest.

Kalshi's complaint, filed in federal court, argues its proposed contracts do not violate commodity trading laws. Therefore, the CFTC cannot block them. READ MORE.

See also:

UK Announces Plans for New Global AI Safety Institute

The British Prime Minister, Rishi Sunak, disclosed plans for the world's first Artificial Intelligence (AI) Safety Institute in the UK.

In a London speech, Sunak detailed the institute's role in advancing understanding of AI safety globally. He emphasized assessing risks of emerging AI models, from biases to extreme threats.

The UK government also outlined an AI research network modeled on the Intergovernmental Panel on Climate Change.

The initiative, with Chinese participation, will publish a report on the state of AI science. Sunak defended engaging all major AI powers to form robust strategy. READ MORE.

Federal Agencies Still Struggling to Manage Fraud Risks, GAO Report Finds

A government watchdog report found federal agencies are falling short in efforts to combat fraud, which has drained billions from COVID relief and other programs.

The Government Accountability Office (GAO) surveyed 24 major agencies and found most have established anti-fraud entities on paper, but face challenges putting fraud risk management into practice.

Limited budgets, staffing shortfalls and lack of advanced data analytics capabilities are hindering many agencies’ fraud prevention attempts.

This comes as pandemic-related fraud for unemployment insurance alone could total $100-135 billion, the GAO estimates.

Since 2015, the GAO has made 173 recommendations to improve fraud prevention efforts - 95 of which still haven't been fully implemented as of last August. The GAO highlighted actions Congress could take, like requiring more fraud risk reporting and establishing a permanent inspector general analytics team to identify improper payments. READ MORE .

PCAOB Fines Canadian Firm Smythe for Audit Failures

The Public Company Accounting Oversight Board (PCAOB) fined Canadian accounting firm Smythe $175,000 for improperly using unregistered firms for audits of two cross-listed companies.

The U.S. regulator found Smythe failed to properly oversee the unregistered firms' work.

Smythe relied significantly on PwC Malta and an Argentine firm to audit foreign units of an iron ore miner and telecom.

Canada's regulator already banned Smythe from taking new public audit clients in 2023 for unspecified issues. READ MORE .

PwC Picks Consulting Head as Next Chair

PwC selected the leader of its international advisory unit, Mohamed Kande, as its next chair. This marks the first time a Big Four accounting firm will be chaired by a consulting partner.

Kande's appointment was announced internally Monday. It needs ratification from PwC's member firms globally.

Kande would replace current PwC Chair Bob Moritz, whose term expires in June. READ MORE.

The Trial of Crypto's Golden Boy

With a jury finding Sam Bankman Fried guilty yesterday, it's worth sharing the entire set of podcasts produced by WSJ's The Journal.

Sign up to Med-Tech Monday, MBK Search’s weekly update on everything in medical device and technology regulation, out every Monday.?Subscribe here.

At MBK Search, we help firms find world-class talent to build champion GRC teams. We recruit across all regulated industries and sectors in the United States, EMEA, and APAC. Let's start building — visit our website to find out how.?www.mbksearch.com