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December 16, 2019Today's Top Risk News + Analysis From the Editors at RANE
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01
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GEOPOLITICAL
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UK Election Results Signal Changes That Will Redraw Britain’s Place in the World

After UK Prime Minister Boris Johnson led the Conservatives to a general election win, Brexit is back on track and Labor is left licking its wounds after its fourth defeat in a row, the BBC reports. Johnson’s majority means that he will have the backing of Conservative Members of Parliament to take Britain out of the European Union next month — a huge junction in its history and a moment that will redraw its place in the world. The results mean that Britain could have a Conservative government for five more years in a serious loss for Labour, which had moved further to the left in recent years. The Scottish National Party made significant gains in Scotland, clearing out Conservatives and opening the likelihood of a renewed call for Scotland’s independence from Britain and self-determination to remain in the EU. Jeremy Corbyn has stated that he will no longer fight another election as Labour leader after the party was swept aside in its traditional heartlands. In this election, the Labour party suffered its worst defeat since 1935, as it lost seats across northern England, the Midlands and Wales in areas that backed Brexit in the 2016 referendum.

READBBC , BBC 
02
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LEGAL, REGULATORY + COMPLIANCE
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Analysts Say Saudi Aramco is a ‘Polarizing Stock’ With Royal Family Calling the Shots

Saudi Arabia’s state-owned oil giant Saudi Aramco debuted on the Saudi Tadawul stock exchange on Wednesday, it became the world’s largest initial public offering. The company plans to list eventually on international exchanges, but even if that brings in more foreign money it is set to become a “polarizing stock,” analysts say. CNBC reports that Pavel Molchanov, an energy analyst at Raymond James investment bank, said corporate governance is a key risk for investors. With the Saudi royal family calling all the shots, Molchanov said, it doesn’t matter what independent board members or investors think, which creates risks that “are not for everybody.” Geopolitical risks include instability in the region, such as the September attacks on Saudi Aramco oil facilities that shut down half the kingdom’s total oil production, underscoring the vulnerability of the infrastructure and the ongoing potential for upheavals and dislocations. Bernstein Research initiated coverage on Aramco with an “underperform” rating. Its closing price on Wednesday of 35.20 riyals a share had declined 27 percent to 25.5 riyals per share on Thursday.

READCNBC 
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03
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CYBER + INFORMATION
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Senator Introduces Legislation to Safeguard Energy Grid From Cyberattack Into 2020 Defense Bill

Sen. Angus King, a Maine Independent, folded legislation into the 2020 Defense Authorization Bill that aims to safeguard the U.S. energy grid from cyberattacks, SC Magazine reports. The Securing Energy Infrastructure Act seeks to protect the grid by facilitating partnerships with the private industry to engineer means to eliminate vulnerabilities that allow hackers access through porous software systems. The legislation was partly inspired by the 2015 attack on Ukraine’s power grid, which was partially thwarted because the country still relied on manual technology to run the grid. King’s bill will build a two-year pilot with National Laboratories to isolate new vulnerabilities and create a working group to review tech solutions and create a strategy for containing attacks, including using “retro” technology to isolate critical control systems. It also compels the Secretary of Energy to formally report to Congress and define the entities covered. Sen. Jim Risch, an Idaho Republican, introduced the Act with King. Both are members of the Senate Intelligence Committee and the Senate Committee on Energy and Natural Resources.

READSC Magazine 
04
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GEOPOLITICAL
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Senate's Unanimous Vote on Armenian Genocide Bill Likely to Infuriate Turkey

The U.S. Senate passed a resolution on Thursday that formally recognizes the mass killings of more than 1 million Armenians in Turkey that happened a century ago, NPR reports. There were three previous blocks by Republican senators that had come at the request of the White House, which worried that its passage would anger Turkey during a tense period of U.S.-Turkey relations, according to Axios. Republican Senators Lindsey Graham of South Carolina, David Perdue of Georgia and Kevin Cramer of North Dakota had objected to the resolution previously but did not do so during Thursday’s vote. The bipartisan resolution was sponsored by New Jersey Democrat Bob Menendez and Texas Republican Ted Cruz. Menendez has championed the cause since arriving in the Senate in 2006. Turkey has clashed with its NATO allies including the U.S. over its purchase of a Russian S-400 missile system and over its military assault against U.S.-allied Kurdish forces in Northern Syria. Turkey’s spokesperson tweeted a warning that the action had damaged Turkish-American ties and endangered bilateral relations.

READNPR , Axios 
05
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SAFETY + SECURITY
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Pentagon: No New Foreign Military Students Will Enter U.S. Until Better Screening in Place

The Pentagon announced Thursday that no new international military students will be admitted to train in the U.S. until new screening procedures are in place. The Associated Press reports that the bulk of screening is currently done by the State Department and the Department of Homeland Security, but after the deadly shooting last week by a Saudi Arabian aviation trainee in Florida, the Defense Department will expand its role in the process and conduct additional reviews. Investigators trying to determine if Saudi Air Force Second Lt. Mohammed Alshamrani acted alone amid reports that he and others watched videos of mass shootings earlier in the week. About a dozen Saudi student acquaintances of the shooter have been confined to base and the Pentagon has suspended all training for all Saudi Arabian students in U.S. military programs. A Pentagon spokesman said the enhanced screening, when completed, will apply to all international students.

READThe Associated Press 
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06
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CYBER + INFORMATION
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Masks and Photos Can Fool Airport and Payment Systems Facial Recognition

Artificial intelligence company Kneron highlighted a major shortcoming in facial recognition technology when it visited public locations and tricked facial recognition terminals into allowing payment or access using high-quality 3-D masks. Fortune reports that facial recognition is billed as a more effective security tool that uses a person’s face rather than a PIN or fingerprint to validate the user’s identity. Being fooled by a mask means a fraudster could use another person’s face and bank account to go shopping. The tests were deployed at transportation hubs and at the self-boarding terminal in Schiphol Airport — the Netherlands’ largest airport — the team tricked the sensor with just a photo on a phone screen. Kneron says its team was able to gain access in the same way to rail stations in China where commuters use facial recognition to pay fares and board trains. The transportation experiments raise terrorism concerns amid security agencies’ quest to use facial recognition as a way of saving money and improving efficiency. Kneron’s CEO Albert Liu said the technology to fix these shortcomings is available, but firms have not upgraded it, preferring to take shortcuts at the expense of security.

READFortune 
07
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GOVERNANCE
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Lloyd’s of London Takes On ‘Cultural Overhaul’ Including Guide to Trans, Binary Inclusion

In the wake of a damaging sexual harassment scandal, Lloyd’s of London has issued a 29-page document providing advice and resources to people working in insurance on how to foster a stable emotional work environment for trans and non-binary colleagues. The Guardian reports that the guide is part of a “cultural overhaul” Lloyd’s has undertaken after testimony from hundreds of staff earlier this year describing routine sexual harassment at the insurance market. The firm issued the online inclusion guide together with Global Butterflies, an organization created to bring awareness of trans and non-binary issues to the business sector. Explanatory tools help employees with advice on language, such as how to ask someone which pronouns they prefer to use, and includes a graphic exploring the interplay between gender identity, sexuality, gender expression and biological sex. The document advises staff that they can expect the proportion of their colleagues who identify as trans or non-binary to rise from its current four percent of employees to as high as 20 percent as younger people join the workforce and bring with them their rejection of gender binaries.

READThe Guardian 
08
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SAFETY + SECURITY
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Home Depot Theft Has Gotten So Serious It Will Narrow Company’s Profit Margins

Organized criminals are stealing millions of dollars’ worth of goods from the Home Depot chain and other retailers and storing the merchandise in warehouses, company executives told a meeting of analysts and investors this week. Bloomberg reports that executives said the theft, which they call “shrink,” is so severe that it will narrow Home Depot’s operating profit to about 14 percent in 2020, compared with 14.5 percent in the third quarter. Chief Executive Craig Menear said the problem isn’t limited to Home Depot and a report from the National Retail Federation stated that retailers lose about $51 billion in sales to shrink each year. What’s new this year, however, is that Menear called out the opioid crisis as a factor in its financial results. The National Retailers Federation reported that more than two-thirds of retailers had seen increases in “organized retail crime activity” over the last year. Though most retailers have security systems in place in their stores, criminals have grown bolder as online opportunities to hawk their stolen wares continue to grow. One response from Home Depot is to rig its power tools so that they won’t work unless they go through the retailer’s point of sale system.

READCBS News , Bloomberg 
09
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BUSINESS INTELLIGENCE
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Wall Street Bonus Payout Pool Shrinks This Year Even as Stock Market Surges

A surging stock market and low unemployment figures don’t mean that bonuses in the securities industry will keep growing, Axios reports. Bonuses are typically announced in December through the beginning of next year, but New York officials estimate the pool of money for bonus payouts will shrink by at least nine percent this season, from the $27.5 billion handed out in 2018 to about $25 billion this year. The dwindling bonus pool has major implications for New York’s budget because these bonuses are a major part of compensation and a source of tax revenue for the city and state. The trickle-down effect means that goods and services attractive to those receiving the bonuses could take a hit as well. The bonus amounts can run to six or seven figures, making up a third or more of an executive’s annual compensation. The smaller payouts are symptomatic of harder times for the banking industry as low interest rates, trade wars, political uncertainty and volatile markets. Morgan Stanley is said to be firing more than two percent of its workforce, or 1,000 people, before year’s end to “avoid paying out bonuses,” CNBC reported. The bank said an uncertain global economic outlook prompted its decision.

READAxios 
10
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CYBER + INFORMATION
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Recruiters Using AI to Make Hiring Decisions, Though Critics Find System Deeply Flawed

A LinkedIn survey of hiring managers and recruiters last year revealed that 67 percent believe that artificial intelligence (AI) was saving time. AI is increasingly used to make the first round of cuts among job applicants and even to determine who sees job postings. Vox reports that critics argue that AI systems can introduce bias, aren’t guaranteed to be accurate and lack accountability and transparency. Proponents say AI systems can consider information human recruiters can’t calculate quickly and can move swiftly through large pools of applicants, which ultimately makes hiring less expensive. They say AI can be fairer and more thorough than overworked human recruiters skimming through mountains of cover letters and resumes and can help strip out information related to a candidate’s identity, such as name, age, gender or school. But, AI systems are only as good as the data they’re trained on and if a resume-screening, machine-learning tool is trained on historical data such as resumes from the company’s previous hires, the system will inherit the preferences of hiring managers who made those selections. Systems can learn to be racist, sexist, ageist and biased in multiple ways.

READVox 
11
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BUSINESS INTELLIGENCE
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Posing a Threat to Traditional Banking, Fintech Transforming Business Across Asia

China was first to unleash financial technology in Asia as tens of millions of its consumers embraced digital payment platforms, online lending and other forms of fintech. The Financial Times reports that the technology is now having a transformative effect throughout Asia and the Indian subcontinent. Millions of businesses across thousands of cities are embracing versions of fintech and forging business models that might make their way to other parts of the world. Ant Financial, Paytm and Go-Jek are among the biggest business disruptors in the region and pose a threat to traditional banks and other financial institutions. James Lloyd, a partner at EY Asia-Pacific focusing on fintech and payments, says people in London, New York and Silicon Valley don’t understand that Asia is now setting the pace in financial-services innovation and that the threat to incumbent banks is greater in Asia than anywhere in the world. Some of the startups offer electronic payments, online loans, credit cards, digital insurance and other services and display more financial muscle than established banks. Some do much more than financial services, running ride-haling businesses and on-demand motorcycle services, as well as grocery shopping and food delivery services, a “super app” approach that gives the companies a large and highly engaged customer base.

READFinancial Times 
12
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SAFETY + SECURITY
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China Jails the Most Journalists in 2019, Watchdog Group Reports

Chinese President Xi Jinping’s efforts to control the media have resulted in the country now jailing more journalists than any in the world, Bloomberg reports. The Committee to Protect Journalists (CPJ) said in a report released on Wednesday that China is holding at least 48 journalists for reasons related to their work, an increase of one over 2018. The group reports that seven of those were arrested this year, including Australian writer Yang Hengjun, as Beijing tightens its grip on the press. Turkey is second on the list with 47 journalists jailed, though protests in the Middle East have led to increases in journalists being locked up throughout the region. The CPJ said most of the journalists detained were locals who were covering their own country and that covering politics, human rights and corruption were the topics most likely to get a reporter arrested. The number of journalists jailed for reporting “false news” rose from 28 last year to 30 this year, compared with one journalist detained for such a charge in 2012. Meanwhile, the Financial Times reports that police have stormed the Beijing offices of a large, New York-listed peer-to-peer lending firm and the group’s chairman has disappeared in the most recent signal that China has increased its internet loan industry crackdown.

READBloomberg , Financial Times 
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