Goldman Sachs 2015 Annual Report Download - page 51

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
The financial services industry is highly interrelated in that
a significant volume of transactions occur among a limited
number of members of that industry. Many transactions are
syndicated to other financial institutions and financial
institutions are often counterparties in transactions. This
has led to claims by other market participants and
regulators that such institutions have colluded in order to
manipulate markets or market prices, including allegations
that antitrust laws have been violated. While we have
extensive procedures and controls that are designed to
identify and prevent such activities, allegations of such
activities, particularly by regulators, can have a negative
reputational impact and can subject us to large fines and
settlements, and potentially significant penalties, including
treble damages.
We face enhanced risks as new business initiatives
lead us to transact with a broader array of clients and
counterparties and expose us to new asset classes
and new markets.
A number of our recent and planned business initiatives and
expansions of existing businesses may bring us into contact,
directly or indirectly, with individuals and entities that are
not within our traditional client and counterparty base and
expose us to new asset classes and new markets. For
example, we continue to transact business and invest in new
regions, including a wide range of emerging and growth
markets. Furthermore, in a number of our businesses,
including where we make markets, invest and lend, we
directly or indirectly own interests in, or otherwise become
affiliated with the ownership and operation of public
services, such as airports, toll roads and shipping ports, as
well as physical commodities and commodities
infrastructure components, both within and outside the
United States.
We have announced our intention to increase our
consumer-oriented deposit-taking activities. To the extent
we engage in such activities or similar consumer-oriented
activities, we could face additional compliance, legal and
regulatory risk, increased reputational risk and increased
operational risk due to, among other things, higher
transaction volumes and significantly increased retention
and transmission of customer and client information.
New business initiatives expose us to new and enhanced
risks, including risks associated with dealing with
governmental entities, reputational concerns arising from
dealing with less sophisticated counterparties and investors,
greater regulatory scrutiny of these activities, increased
credit-related, market, sovereign and operational risks,
risks arising from accidents or acts of terrorism, and
reputational concerns with the manner in which these assets
are being operated or held or in which we interact with
these counterparties.
Derivative transactions and delayed settlements may
expose us to unexpected risk and potential losses.
We are party to a large number of derivative transactions,
including credit derivatives. Many of these derivative
instruments are individually negotiated and non-
standardized, which can make exiting, transferring or
settling positions difficult. Many credit derivatives require
that we deliver to the counterparty the underlying security,
loan or other obligation in order to receive payment. In a
number of cases, we do not hold the underlying security,
loan or other obligation and may not be able to obtain the
underlying security, loan or other obligation. This could
cause us to forfeit the payments due to us under these
contracts or result in settlement delays with the attendant
credit and operational risk as well as increased costs to the
firm.
Derivative transactions may also involve the risk that
documentation has not been properly executed, that
executed agreements may not be enforceable against the
counterparty, or that obligations under such agreements
may not be able to be “netted” against other obligations
with such counterparty. In addition, counterparties may
claim that such transactions were not appropriate or
authorized.
As a signatory to the ISDA Protocol, we may not be able to
exercise remedies against counterparties and, as this new
regime has not yet been tested, we may suffer risks or losses
that we would not have expected to suffer if we could
immediately close out transactions upon a termination
event. The ISDA Protocol contemplates adoption of
implementing regulations by various U.S. and non-U.S.
regulators, and the ISDA Protocol’s impact will depend on,
among other things, how it is implemented.
Goldman Sachs 2015 Form 10-K 39