Certified public accountants face a range of risks that can lead to professional liability claims. Aon Affinity Executive Vice President Ken Mackunis and Senior Vice President Dave Sukert discuss how firms can mitigate their potential for liability. (Aon Affinity is the administrator of personal and business insurance benefits for members of the American Institute of Certified Public Accountants.)
Have technology and cybersecurity-related issues raised the risk of professional liability claims?
Mackunis: In the course of delivering professional services to clients, CPAs are ultimately responsible for the tools and technology necessary to complete their engagements, so if they lose or misplace their laptop or tablet, there is potential for claims from both clients and third parties. Additionally, accounting professionals have a duty to protect personally identifiable information, in compliance with HIPAA privacy laws, among others. A failure to maintain and protect private information, in contravention of laws or regulations, could result in greater risks of claims being brought against a practitioner. (read more…)
The circumstances surrounding the arrest of Navinder Sarao for his actions related to the Flash Crash have been covered widely, but there is one angle that seems to be slipping through the cracks: Sarao’s intent. Or more precisely, his lack of intent.
Considering the volume of trade orders Sarao is alleged to have placed and then canceled, it seems likely his intention was to manipulate the market. And if Sarao ever stands trial and it is proven that he was “spoofing” or manipulating the market in some other way, then he should be punished accordingly.
However, I find it hard to believe Sarao woke up on the morning of May 6, 2010, and said to himself, “Today I am going to crash the market, drive shares of Accenture to one cent, raise Apple shares to more than $100,000 and then call it a day.” In fact, his actions after the Flash Crash suggest he had no idea his trades played such an allegedly large role in the day’s events. (read more…)
A collection of stories from SmartBrief publications and around the web…
JPMorgan software identifies potentially rogue workers: Bloomberg reports on a Reagan-esque initiative at JPMorgan to “trust, but verify” the actions of its employees. Sally Dewar, JPMorgan Chase’s head of regulatory affairs for Europe, is overseeing an algorithmic program that identifies employees who might go rogue. The software considers dozens of factors, including whether an employee violates trading rules or fails to attend compliance classes. “It’s very difficult for a business head to take what could be hundreds of data points and start to draw any themes about a particular desk or trader,” Dewar said. “The idea is to refine those data points to help predict patterns of behavior.”
Treasury Market Practices Group says HFT might be no bueno for Treasurys: High-frequency and other types of automated trading have increased risk to trading Treasurys, according to the Treasury Market Practices Group, which is sponsored by the Federal Reserve Bank of New York. (read more…)
We all have heard that one of the big culprits in the credit crisis was the collateralized debt obligation (CDO). CDOs are notes backed by baskets or cohorts of different types of receivables. The notes can be backed by residential mortgages, or commercial mortgages, or student loans, or credit card receivables or auto loans, etc (or a mixture of all the above). It is the cash flows from those receivables, not some end borrower, that services the CDO notes, i.e. pays interest and amortizes the principal on the notes.
I don’t want to go into the details about CDOs here or their role in the credit crisis because many other writers have gone into this exhaustively elsewhere. Suffice to say CDOs (or asset backed financing/securitizations) are actually very important and effective ways of financing certain receivables pools (of effecting what is known as ‘non-recourse’ finance). And yet there were fairly obvious issues with many CDO structures before the crisis: their excessive structural complexity (the notes were broken into too many tranches); the questionable credit quality of the underlying assets; the use of too many different types of underlying receivables; the fact that those rating the notes (the rating agencies) were effectively in bed with the originators of the notes; the overly aggressive selling methods of CDO tranches by swarms of brokers; etc. (read more…)