Risk Channel delivers the latest, most relevant and useful business intelligence to key decision makers and influencers, each weekday morning.

Global banking regulators have proposed stricter standards for banks to assess risks from customers in order to avoid mismanagement. The Basel Committee, consisting of banking regulators from the G20 economies and beyond, has called for improved management of counterparty credit risks (CCR) presented by clients. The committee highlighted weaknesses in due diligence, credit risk mitigation practices, risk measurement practices, and governance and senior management oversight of CCR. The proposed guidance emphasizes comprehensive due diligence during the onboarding process of new customers and on an ongoing basis. Banks are urged to use robust contractual terms, risk-sensitive margining, and a wide range of metrics to mitigate risks. The proposal comes in response to recent cases of significant mismanagement of CCR, including the collapse of Archegos Capital Management and episodes of volatility in commodities and the UK government bond market. The revised draft guidance is open for public consultation until August.

 

Reuters

Elon Musk has shut down the division that runs Tesla’s electric vehicle charging business, dismissed two senior executives and fired hundreds more staff, The Information has reported, citing an e-mail sent by Musk to senior executives. “Hopefully these actions are making it clear that we need to be absolutely hard core about headcount and cost reduction,” Tesla's chief executive wrote in the e-mail, the report said. Any manager “who retains more than three people who don’t obviously pass the excellent, necessary and trustworthy test” should resign, he added. Reuters says the decision blindsided automakers gearing up to equip new electric vehicles for customers to use the Tesla Supercharger network, industry officials and analysts said. Tesla’s public policy team will also be dissolved, according to the report.

 

Financial Times

Reuters

Straits Times

The Information

The Equal Employment Opportunity Commission (EEOC) has released new guidance on workplace harassment, stating that employers who refuse to use transgender workers' preferred pronouns and deny them access to gender-appropriate bathrooms are engaging in unlawful workplace discrimination. The guidance also addresses discrimination against employees based on their decisions to have abortions or use contraception, stating that it is a form of sex discrimination. Although the guidance is not legally binding, it provides a blueprint for how the EEOC will enforce anti-bias laws. The EEOC Chair, Charlotte Burrows, emphasized that the guidance reflects court rulings that have expanded workers' rights to be free from workplace harassment. The guidance was approved by the Democrat-led commission in a 3-2 vote. The EEOC had not updated its legal guidance on harassment since 1999, and the new guidance covers various topics related to workplace harassment, including remote work and social media conduct.

 

Reuters

The former chief executive of Binance has been sentenced to four months in prison after pleading guilty to failing to establish adequate money laundering controls at the exchange. Appearing in federal court in Seattle on Tuesday, Changpeng Zhao expressed regret for not introducing tougher “know your customer” policies at Binance, which paid $4.3bn in fines last year for failing to halt transactions that financed terrorist groups Hamas and al-Qaeda and sanctioned entities in Iran and Russia, among other violations.

 

Financial Times

Reuters

International companies are being urged to leave Xinjiang amid concerns over forced labor. The U.S. government accuses Chinese officials of committing crimes against humanity against Uyghurs and other Muslim minorities in the region. Thea Lee, deputy undersecretary for International Affairs at the U.S. Labor Department, stated that Beijing has made it "essentially illegal" to conduct independent human rights audits in Xinjiang. Lee emphasized that if it is impossible to conduct audits, companies should not operate in such an atmosphere. China's government denies allegations of abuses. German chemicals giant BASF and Volkswagen have already taken steps to address forced labor concerns in Xinjiang. Lee highlighted the challenges of monitoring the labor transfer program and the lack of access to workplaces to assess workers' origins.

 

Reuters

The Labor Department's employment cost index (ECI), a measure of worker salaries and benefits, rose 1.2% in the first quarter, higher than the 0.9% growth seen in the fourth quarter of 2023, and above the Dow Jones consensus estimate for a 1% increase. Higher benefits costs helped drive the index to its biggest quarterly increase in a year. They shot up to 1.1% from a 0.7% gain the prior quarter, while wage and salary growth was unchanged at 1.1%. On an annual basis, the index that measures changes in wages and benefits held pat at 4.2% for the year ending in March. The biggest pay gains were seen in the public sector, where compensation over the 12 months grew 4.8%. Federal Reserve officials are closely monitoring the trajectory of wage gains, out of concerns that accelerated compensation growth may serve as an inflation pressure. The central bank is holding its latest policymaking meeting this week and is expected to announce today that interest rates will remain unchanged.   “The Fed would now need to see a spectacular rollover in payrolls in May and June and equally spectacular inflation numbers in order to cut rates in June,” Ian Shepherdson, chief economist for Pantheon Macroeconomics, wrote in a note issued Tuesday. “That’s possible but the ECI has raised the bar for easing to the point where we now have to look for the first move in September instead.”

 

CNN

CNBC

As bird flu continues to spread among dairy cows, the U.S. Department of Agriculture (USDA) is now testing ground beef for the presence of the virus. The agency is sampling ground beef bought in states where dairy cattle have tested positive for the virus, as well as testing muscle tissue from sick cows. The USDA is also injecting a "virus surrogate" into ground beef and cooking it at different temperatures to determine how much virus is killed. Despite the testing, the USDA assures consumers that the meat supply is safe. The U.S. Food and Drug Administration (FDA) is also testing retail milk samples for live bird flu virus, with initial findings suggesting that the pasteurization process is killing the virus. However, genetic bits of the virus have been found in 20% of retail milk samples, indicating that bird flu has spread widely among dairy cows. The FDA is continuing testing efforts and has not found any evidence of the virus in infant and toddler formulas. The USDA has now implemented mandatory testing of dairy cows moving across state lines. Experts believe that pasteurization should kill the virus and assure the safety of milk.

 

U.S. News

U.S. consumer confidence fell in April to its lowest level since mid-2022, with Americans' views of the labor market and economic outlook deteriorating. The Conference Board's gauge of sentiment dropped to 97, its third consecutive decline, and well below the 103.5 forecast by economists polled by the Wall Street Journal. Expectations for the next six months also fell to the lowest level since July 2022. A measure that looks at how consumers feel about the economy right now dropped to five-month low of 142.9, while a confidence gauge looking ahead six months fell to 66.4, from 74 in March. “Elevated price levels, especially for food and gas, dominated consumer’s concerns, with politics and global conflicts as distant runners-up,” said Dana Peterson, chief economist at the board.

 

Bloomberg

Market Watch

The Institute of Internal Auditors (IIA) has emphasized the urgent need for internal audit departments to hire more technologically adept professionals in response to the accelerating pace of technological innovation. This need is driven by emerging technologies such as AI and robotic process automation, which are transforming business models and operational strategies. The IIA's study, sponsored by Deloitte, highlights a critical challenge: the internal audit profession is not only competing for scarce talent in traditional accounting roles but also against major tech companies for graduates skilled in AI, cybersecurity, and data analytics. The shortage of suitable candidates is exacerbated by a significant decline in the number of accounting graduates, with a 7.4% drop in the 2021-2022 academic year alone, continuing a six-year downward trend reported by the AICPA. This decline in new professionals entering the field presents a considerable hurdle for internal audit functions that are increasingly reliant on advanced technological capabilities to enhance their efficacy and scope. According to IIA CEO Anthony Pugliese, the future of internal auditing will extend beyond traditional assurance roles to include more comprehensive advisory services and strategic business insights. This shift necessitates not only technological skills but also advanced soft skills in leadership and communication.

 

AICPA

PR Newswire

The IIA

Austria has called for fresh efforts to regulate the use of artificial intelligence (AI) in weapons systems, as concerns grow over the development of autonomous weapons. Austrian Foreign Minister Alexander Schallenberg has urged the international community to agree on rules and norms to ensure human control over AI weapons. He says the use of AI in weapons systems poses ethical and legal challenges that need to be addressed urgently. "We cannot let this moment pass without taking action. Now is the time to agree on international rules and norms to ensure human control," Austrian Foreign Minister Alexander Schallenberg told a Vienna meeting of non-governmental and international organisations as well as envoys from 143 countries.

 

Reuters

Financial details of Shell's oil and gas trading business, one of the company's closely-held secrets, have been revealed in a lawsuit filed by a former employee. The documents disclosed that Shell's U.S. crude trading division consistently earns between $950m to $1bn per year. This accounts for 13% to 15% of Shell's overall U.S. pre-tax profits. The lack of financial transparency concerning Shell's trading desk concerns investors. The trading business, although highly profitable, can also be volatile. Traders make money by capitalizing on gaps in global supply and demand. Their pay often includes substantial bonuses. Shell recently won a court case against a former trading manager who claimed breach of contract. The verdict nullified the manager's claim against Shell. Shell's spokesperson declined to comment on the matter.

 

Reuters

Defaults in the U.S. office market are at historic levels, with over $38bn of office buildings facing defaults, foreclosures, or other forms of distress. This is the highest amount since the aftermath of the 2008-2009 financial crisis. Office owners are struggling to pay back loans due to high interest rates and weak demand. The pandemic has caused a decline in demand as businesses allow employees to work from home and reconsider their workspace needs. Tenants are now closely scrutinizing landlords' financial health before signing new leases. The Federal Reserve's decision not to cut interest rates has further worsened the situation. The office vacancy rate is currently at a record 13.8%, compared to 9.4% in 2019.

 

Wall Street Journal

Wells Fargo shareholders have approved the bank's plans for executive compensation, including increasing CEO Charlie Scharf's 2023 package to $29m. Scharf addressed the bank's investment in risk and control infrastructure, which has become a top priority after the 2016 scandal involving fraudulent accounts. The bank is currently under an asset cap and has eight open consent orders. Scharf mentioned that the U.S. economy remains strong, but consumer delinquencies are rising. Wells Fargo CFO Jane Fraser also noted that U.S. consumers are becoming more cautious with their spending.

 

Reuters

A fossil fuel tax on companies in the wealthiest nations could raise as much as $720bn by the end of the decade, according to a new report. The tax would be levied on the extraction of fossil fuels in the world's richest economies and could play a crucial role in combating the worst impacts of the climate crisis if it is directly diverted to helping countries transition to greener sources of energy and compensate the most vulnerable people. The Climate Damages Tax report recommends levying a $5 tax for every ton of carbon pollution starting from 2024 and increasing it by $5 a year.

 

The Independent

At least a dozen people in California and Washington have been sickened with E. coli food poisoning linked to organic walnuts sold in bulk in 19 states, U.S. health officials said. The nuts were sold in natural food and co-op stores such as Whole Foods and Market of Choice. Seven people have been hospitalized and two have developed a dangerous kidney disease known as hemolytic uremic syndrome. Gibson Farms has recalled potentially affected walnuts with expiration dates between May 21, 2025 and June 7, 2025. The nuts are potentially contaminated with dangerous E. coli bacteria that can cause severe stomach cramps, diarrhea and vomiting.

 

Chicago Tribune