Risk Management
A major government-sponsored enterprise needed to improve its enterprise-wide risk management program as part of its strategic growth initiative. Promontory assessed its current program and recommended improvements in risk management practices for major risks by reviewing the company’s risk governance framework and risk management practices. Our professionals brought the client up to industry best practices and assisted in revising its asset liability management policy.
A major U.S. financial institution reached out to Promontory after identifying deficits in its compliance risk management program that had prompted enforcement actions from both the Federal Reserve Board and the Office of the Comptroller of the Currency. Promontory reviewed compliance operations in the corporate center and several business units, compliance testing by the internal audit function, and compliance oversight by the responsible committee of the board of directors. Our reports provided the foundation for a broad program of corrective action including changes in personnel, processes, and controls. The institution now has a well-rated compliance program and is no longer under enforcement actions.
A global commercial banking institution based in the Asia-Pacific region tapped Promontory to conduct a forensic review to identify the cause of a multi-billion dollar loss, and to assess the institution’s risk management function. The institution adopted our recommendations, restructured its risk management function, strengthened board oversight, sold a major subsidiary, regained its competitive footing, and restored itself to the good graces of its previously highly critical regulator.
RELATED MATERIALS
Risk Management Training
Regulatory Advice
A major financial institution was directed to retain an independent compliance consultant as part of an SEC enforcement action alleging late trading and market timing by its mutual fund affiliates. The institution selected Promontory to conduct a comprehensive analysis of supervisory, compliance, and other policies and procedures. Based on its findings, Promontory recommended a risk management and compliance structure and related controls to guard against: conflicts of interest, breaches of fiduciary duty, breaches of codes of ethics, and violations of federal securities laws. As required by the enforcement order, Promontory’s written report and recommendations were delivered to the client and to the SEC.
A monoline insurer, in the midst of making significant capital and liquidity enhancements, called on Promontory to advise and assist with communications and interactions with state and federal regulators, legislators and other interested parties.
A national securities exchange with an affiliated designated contract market sought Promontory’s expertise when it was time to draft and update trading rules and related member materials to govern trading on a new futures trading system. Promontory assisted and advised the client throughout the rule development and approval process with the CFTC.
Promontory assisted a private equity firm with its effort to establish or acquire an industrial bank. We assisted our client with the requisite applications for regulatory approval of the transaction, including assisting with the required business plan and financial projections. Promontory also advised the client on the appropriate structure for the transaction and on regulatory relations.
Strategic Advice
A financial services company engaged Promontory to analyze securities compliance and regulatory implications of restructuring alternatives. Promontory assessed the costs of designing and implementing a securities compliance program consistent with regulatory requirements and emergent regulatory expectations. We also developed a procedure to ensure that all employees conducting securities-related activities were properly licensed and supervised.
When a financial institution was ordered by the Federal Reserve to obtain an independent review of its liquidity and contingency plan, Promontory got the call. We assisted the client in developing multiple liquidity scenarios and in presenting the resultant contingency plans to the Federal Reserve, Federal Deposit Insurance Corporation, and state regulators.
A large US bank needed assistance in structuring and constructing its independent risk control validation group. Promontory reviewed and provided recommendations on documents relating to the group’s mission, structure, and proposed operations. We also advised the bank on regulatory and other issues related to the group’s structure and operation. Our experts made recommendations for improvement based upon industry best practices and regulatory guidance.
A large bank announced that it was compelled to restate its financial statements for the preceding five years due to accounting issues related to certain mortgage loan sales. The bank appointed Promontory as an independent consultant to review its mortgage loan portfolio, particularly regarding carrying value and loan documentation support. Promontory reported findings to the bank and to its regulators.
Compliance
A US state regulator required a large broker-dealer and investment adviser to hire an independent consultant to assess its controls over the use and protection of customers’ personal and financial information. Promontory was engaged to conduct a review of relevant policies, procedures and practices. We assessed the effectiveness of the design and implementation of existing policies, procedures and related practices to determine compliance with state and federal law, including the Gramm-Leach-Bliley Act and the Securities and Exchange Commission’s (SEC) Regulation S-P. Promontory reported its findings and recommendations to the client and to the government regulators.
A registered investment adviser to multiple hedge funds turned to Promontory for a review of its compliance systems and written compliance policies and procedures. We assessed the operational effectiveness of compliance policies, procedures and systems, and made recommendations to fulfill regulatory requirements and to meet industry best practices. Throughout the review, Promontory gave real-time advice to the client on compliance and regulatory issues and provided guidance to the client and its attorneys on working relationships with the SEC’s examination of enforcement staff.
A large European bank retained Promontory to conduct a preliminary assessment of its existing compliance risk management structure and controls and processes, with a particular focus on meeting Bank Secrecy Act and anti-money laundering (BSA/AML) regulatory requirements. Promontory helped the bank develop a compliance plan to strengthen its BSA/AML compliance policies and procedures, including the risk assessment of its current customer base.
Model Building and Economic Capital
Promontory was retained to conduct an evaluation of a bank’s credit portfolio, specifically with regard to valuation techniques utilized on asset-backed securities. Promontory reviewed the bank’s existing models and developed and assisting with the implementation of new models.
An international bank engaged Promontory to assist it with its efforts to determine the optimal capitalization and tax structures for its operations in the US, including its agencies in New York and Los Angeles.
Promontory valued a $1 billion portfolio of commercial real estate whole loans owned by a large Japanese financial institution. The valuation consisted of both a fundamental analysis and also took into account best judgment of market spreads. The fundamental analysis was the main driver of the valuation at a time when the market spreads were volatile and unreliable. We performed a detailed qualitative credit review (QCR) of each loan and used the results of the QCR to inform the valuation model through use of a metric.
Due Diligence
A consortium of potential investors retained Promontory to conduct regulatory and compliance due diligence of an acquisition target in the commodities and futures industry. Promontory reviewed the target entity's regulatory, compliance, supervisory and regulatory reporting systems, assessed the target’s policies and procedures and identified areas of potential regulatory risk. Promontory worked collaboratively with the consortium’s other advisers, including business consultants, lawyers, and investment bankers.
Promontory performed due diligence on a finance company acquisition target. Our due diligence activities focused on the target’s risk management infrastructure and the quality of the loan portfolio. We were required to complete the engagement over a two- to three week period in order to meet the client’s competitive bid timeline.
A large Asian bank used Promontory’s expertise in anti-money laundering and other regulatory requirements to assess a potential acquisition target in Southeast Asia. Promontory conducted a focused on-site review on a short timeline and sounded out US regulators on the acquisition.
Corporate Governance
When a large, internationally active financial services company needed help resolving problems in Bank Secrecy Act, “Know Your Customer” and anti-money-laundering compliance, it called on Promontory. We conducted a review of the governance systems, and helped the company manage difficult relations with its regulators while maintaining a dynamic business. Our work was well-received by the regulators, ensuring that upon completion of our review, the company could smoothly return to the business of banking.
A large financial institution faced the challenge of streamlining more than 700 existing enterprise-wide policies into a single coherent framework and governance system. Promontory rose to the challenge by creating an enterprise-wide policy architecture for the company. Our work entailed developing a taxonomy of policies and a template for enterprise-wide policy, cultivating executive-level support for change and piloting the proposed policy architecture in a number of specific policy areas and business lines.
When the corporate governance division of a large Asian financial institution needed to enhance the governance structures for its US operations, Promontory had the answers. We helped the organization come up with a three-part enhancement plan to upgrade its governance structures, including (1) establishing an enhanced committee structure; (2) bolstering risk reporting to encompass all of its US affiliates; and (3) improving the logistical infrastructure within the organization.
Securities
A public company turned to Promontory to conduct an independent, fact-finding investigation as to whether the company had used or sold certain structured finance products that improperly affected the timing or amount of revenue recognized, or expenses incurred, on the respective parties’ financial statements. Promontory analyzed complex structured finance transactions involving millions of pages of documents, conducted extensive interviews of current and former company employees, and reported its findings to the Securities and Exchange Commission (SEC) and to the US Attorney’s office.
A global derivatives firm announced a large loss as a result of overnight trading in an employee’s personal account. The independent directors retained Promontory to review the trading incident, recommend corrective measures on a global basis, and report these findings and recommendations to the board of directors. Our review covered three regional centers – London, New York, and Singapore. The engagement was expanded to include operations in Australia, Canada, India, Japan, Hong Kong, and Taiwan.
Pursuant to a Memorandum of Understanding with a state securities regulator, Promontory was engaged by a financial services company to conduct an independent review of its broker-dealer policies and procedures related to the use by employees and contractors of laptop computers that contain customer personal and financial information. In addition, Promontory assessed the implementation of the broker-dealer policies and procedures and related practices to determine whether the company’s personnel were reasonably able to comply with the policies and procedures related to laptop security and whether the policies and procedures were internally consistent and consistent with state and federal law.
A large multi-state diversified financial holding company was facing an SEC investigation and a bank regulatory review, and needed to take a careful look at its risk management controls and provide related regulatory advice. Promontory conducted a comprehensive analysis of the company’s enterprise-wide risk management controls. As a condition to settling the regulatory issues, Promontory’s team was asked to review and analyze the company’s governance and management structure, internal audit and control functions, regulatory reporting, and risk-management structure, including compliance and financial reporting and accounting systems, and to report our findings and recommendations to the SEC and to the company’s board of directors.
Internal Audit
A large US bank, performing its annual credit audit, turned to Promontory to assess the effectiveness of its existing policies, procedures, and practices relating to the function. In the course of its review, Promontory undertook detailed transaction testing and repeated risk rating assessments to support its findings. The review also examined the overall structure, functional responsibilities, execution strategy, audit process, and evaluation of personnel within the function.
The legal counsel to a large European bank turned to Promontory to assist in a review of certain accounting transactions for its client. Our role was to review and comment on the methodology that the bank used to record certain transactions at its headquarters. The bank used our findings to review similar transactions throughout its entire operation.