FTX: The predictable disaster of rejecting any and all GRC

Governance, Risk, and Compliance is what makes things work for everyone–reject it at your peril

By Frank Cummings

If you followed Sam Bankman-Fried’s ‘What, me worry?’ media adventures post-FTX collapse, your mouth might be permanently agape. The story of FTX and Bankman-Fried’s rule there is a governance and compliance nightmare—a nightmare centered on the self-admitted near-complete absence of governance, oversight, risk-management, or compliance of any kind. 

In his recent “Good Morning America” interview, Bankman-Fried acknowledged that he spent no time nor effort to assess and manage risk at FTX. And according to a Fortune Magazine story, Bankman-Fried aggressively eschewed naming a board of directors—and still raised nearly $2 billion in funding. 

“I don’t know what to say,” Bankman-Fried told George Stephanopoulos. “What happened, happened—and, if I had been spending an hour a day thinking about risk management on FTX, I don’t think that would have happened.”

That is one of the mouth-agape comments if you are a GRC or AML Compliance professional. In a world where attempts at financial crime in its myriad forms bombard financial institutions every day, Bankman-Fried’s “hour a day” comment seems wildly reckless, absurd, and offensive.

The same can be said for Bankman-Fried’s reasoning that Risk issues did not rate because they are not a “core business driver.” That nugget of genius ‘insight’ only holds if one looks at the financial-services sector through a pinhole in order to ignore every other reality and consequence that have necessitated close regulation for AML Compliance and the prevention of terror financing and fraud.

One of the interesting elements of the FTX fallout has been the willingness of Bankman-Fried to speak to journalists and Twitter followers almost non-stop irrespective of the legal actions he almost certainly will face. 

If you’ve missed the media tour, this WSJ article offers a lot of links that will help you catch up.  Expect to find one example after another of a tone from the top that is diametrically opposite of what produces effective Governance, Risk, and Compliance programs. And overall it’s a stunning example of what happens when a charismatic financial ‘cowboy’ goes rogue.

And while Bankman-Fried may be the public face of the FTX implosion, where was the never-named board of directors? Where were the auditors, both internal and external? Where were the Key Risk Indicators. Where was the forewarning central to our system?

Bloomberg Tax provided one of the initial reports on the failure of auditing firms at FTX. Bloomberg names two auditing firms currently in the crosshairs of possible legal exposure for these failures. You can read more about that here, and it will no doubt garner more and more attention as authorities, customers, and lawyers sift through the wreckage of FTX.  

The non-existent Board, the auditing firms, the CEO, the CFO, and the management team can and should expect to face criminal liability for this stunning failure of every element of basic Governance, Risk, and Compliance.

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