example, globalization makes group management and risk aggregation more challenging, and the increasing power of information technology creates both new opportunities and new risks. furthermore, new products and new distribution channels are likely to affect your business and risk profile. the fiduciary and investment world has not been immune to problems caused by ineffective controls. well - publicized accounts of late trading and market timing at mutual fund firms, and the related investigations, have touched many businesses including banking, securities, and insurance firms. these types of compliance failures result in sanctions or financial loss and adversely affect the reputation and franchise value of a firm. as a result, we are seeing an increasing focus on enterprisewide compliance - risk management systems. the business lines and activities of financial services firms can cross many legal entities, making it more difficult for a supervisory agency acting alone to determine what went wrong and what processes may need to be improved. in some of the mutual fund cases, the federal reserve, as the consolidated supervisor of the relevant banking organization, worked closely with the primary bank regulator and the securities and exchange commission ( sec ) to investigate control breakdowns. the agencies exchanged information in order to compare their findings. findings from sec examinations of the broker - dealers, investment advisers, and mutual fund distributors were analyzed together with findings from targeted joint reviews of the bank holding companies and the banks conducted by the federal reserve and the primary bank regulators. the banking agency reviews were focused on corporatewide compliance practices and bank lending practices. my observation is that the significant deficiencies in mutual fund practices resulted from a combination of factors and a breakdown in controls. first, mutual fund activities were not being effectively overseen by their mutual fund boards. second, there were strong financial incentives at certain firms to increase the profitability of mutual fund activities, but the legal and reputational risks of these incentives were not appropriately addressed. third, a lack of adequate employee training resulted in employees deviating from standard procedures, in order to accommodate certain large customers. for example, in some cases, employees granted key customers a routine waiver of redemption fees, which allowed them to engage in market timing at the expense of other fund shareholders. a stronger corporate compliance program would have enabled a local compliance officer to identify these problems and bring them to the attention of higher - level managers within the corporation. based on our experience in investigating control breaches in these mutual fund cases, i would like to highlight a few lessons learned. one of the most obvious to me is the need to critically evaluate unusual

at an exponential rate. in this regard, one of the biggest risks faced by risk managers is not being sufficiently prepared for the future. as yogi berra once said, " the future ain't what it used to be. " yet risk managers face the challenge of ensuring their organizations are sufficiently prepared for whatever events the future holds. it's true that we cannot predict the future in a specific way. but if the past is any guide, we can comfortably expect that new technologies will enable us to overcome problems and challenges that today appear to be insurmountable. at the same time, however, innovation will bring new problems and challenges. as risk managers, the key question for us to answer is " how can we best cope with the dramatic changes and challenges that will inevitably occur? " preparation is the easy answer, but foresight and discipline are also needed. at a fundamental level, managers need to make sure that their organizations have in place the risk - management policies, processes, and technologies to properly measure, monitor, and control their risk exposures. beyond the basics, the next imperative is to do some hard thinking about the future. more specifically, managers need to conduct scenario analysis and scenario planning - - and this is one area of risk management that is sometimes overlooked or not taken seriously. scenario analysis and scenario planning are difficult ; they cannot be done on the fly. for many financial organizations, scenario analysis starts and ends with quantitative exercises that measure exposures to specific risk factors, such as changes in interest rates or credit spreads. to realize the full benefits of scenario analysis, however, the analysis must move beyond quantitative exercises. a comprehensive scenario analysis should encompass a thoughtful and thorough analysis of potential, but plausible, major changes in the economic, political, and social landscape. what are these changes? how will they affect your business? how will you respond to them if they occur? this analysis is the primary responsibility of risk management. but scenario analysis is not the end goal. something must be done with the results of the analysis. management must ask itself whether the organization needs to restructure its balance sheet or modify its current risk - management strategy in order to be prepared for scenarios that may unfold in the near future. this strategizing is at the core of effective scenario planning. some key scenarios you should consider as part of your scenario planning include how forces such as continued globalization, technological advances, and competition from product innovation will affect your particular line of business. for