Wells Fargo 2015 Annual Report Download - page 130

Risk Factors (continued)
of applicable privacy and other laws, regulatory fines, penalties
or intervention, reputational damage, reimbursement or other
compensation costs, and/or additional compliance costs, any of
which could materially adversely affect our results of operations
or financial condition.
Our framework for managing risks may not be fully
effective in mitigating risk and loss to us. Our risk
management framework seeks to mitigate risk and loss to us. We
have established processes and procedures intended to identify,
measure, monitor, report and analyze the types of risk to which
we are subject, including liquidity risk, credit risk, market risk,
interest rate risk, operational risk, legal and compliance risk, and
reputational risk, among others. However, as with any risk
management framework, there are inherent limitations to our
risk management strategies as there may exist, or develop in the
future, risks that we have not appropriately anticipated or
identified. In certain instances, we rely on models to measure,
monitor and predict risks, such as market and interest rate risks,
however there is no assurance that these models will
appropriately capture all relevant risks or accurately predict
future events or exposures. In addition, we rely on data to
aggregate and assess our various risk exposures and any issues
with the quality or effectiveness of our data aggregation and
validation procedures could result in ineffective risk
management practices or inaccurate risk reporting. The recent
financial and credit crisis and resulting regulatory reform
highlighted both the importance and some of the limitations of
managing unanticipated risks, and our regulators remain
focused on ensuring that financial institutions build and
maintain robust risk management policies. If our risk
management framework proves ineffective, we could suffer
unexpected losses which could materially adversely affect our
results of operations or financial condition.
We may incur fines, penalties and other negative
consequences from regulatory violations, possibly even
inadvertent or unintentional violations. We maintain
systems and procedures designed to ensure that we comply with
applicable laws and regulations. However, some legal/regulatory
frameworks provide for the imposition of fines or penalties for
noncompliance even though the noncompliance was inadvertent
or unintentional and even though there was in place at the time
systems and procedures designed to ensure compliance. For
example, we are subject to regulations issued by the Office of
Foreign Assets Control (OFAC) that prohibit financial
institutions from participating in the transfer of property
belonging to the governments of certain foreign countries and
designated nationals of those countries. OFAC may impose
penalties for inadvertent or unintentional violations even if
reasonable processes are in place to prevent the violations. There
may be other negative consequences resulting from a finding of
noncompliance, including restrictions on certain activities. Such
a finding may also damage our reputation as described below
and could restrict the ability of institutional investment
managers to invest in our securities.
Under the Iran Threat Reduction and Syria Human Rights
Act of 2012, we are required to make certain disclosures and file
a separate report with the SEC if we or our worldwide affiliates
knowingly engage in certain activities involving Iran. The scope
of the reporting requirement is broad and covers any domestic
or foreign entity or person that may be deemed to be an affiliate
of ours. The potential government sanctions and reputational
harm for engaging in a reportable activity may be significant.
Any violation of these or other applicable laws or regulatory
requirements, even if inadvertent or unintentional, could result
in fees, penalties, restrictions on our ability to engage in certain
business activities, reputational harm and other negative
consequences.
Negative publicity, including as a result of protests,
could damage our reputation and business. Reputation
risk, or the risk to our business, earnings and capital from
negative public opinion, is inherent in our business and has
increased substantially because of the financial crisis and our
size and profile in the financial services industry. The reputation
of the financial services industry in general has been damaged as
a result of the financial crisis and other matters affecting the
financial services industry, and negative public opinion about
the financial services industry generally or Wells Fargo
specifically could adversely affect our ability to keep and attract
customers. Negative public opinion could result from our actual
or alleged conduct in any number of activities, including
mortgage lending practices, servicing and foreclosure activities,
corporate governance, regulatory compliance, mergers and
acquisitions, and disclosure, sharing or inadequate protection of
customer information, and from actions taken by government
regulators and community or other organizations in response to
that conduct. In addition, because we conduct most of our
businesses under the “Wells Fargo” brand, negative public
opinion about one business also could affect our other
businesses. The proliferation of social media websites utilized by
Wells Fargo and other third parties, as well as the personal use
of social media by our team members and others, including
personal blogs and social network profiles, also may increase the
risk that negative, inappropriate or unauthorized information
may be posted or released publicly that could harm our
reputation or have other negative consequences, including as a
result of our team members interacting with our customers in an
unauthorized manner in various social media outlets.
As a result of the financial crisis, Wells Fargo and other
financial institutions have been targeted from time to time by
protests and demonstrations, which have included disrupting
the operation of our retail banking stores and have resulted in
negative public commentary about financial institutions,
including the fees charged for various products and services.
There can be no assurance that continued protests and negative
publicity for the Company or large financial institutions
generally will not harm our reputation and adversely affect our
business and financial results.
Risks Relating to Legal Proceedings. Wells Fargo and
some of its subsidiaries are involved in judicial, regulatory and
arbitration proceedings or investigations concerning matters
arising from our business activities. Although we believe we have
a meritorious defense in all significant litigation pending against
us, there can be no assurance as to the ultimate outcome. We
establish reserves for legal claims when payments associated
with the claims become probable and the costs can be reasonably
estimated. We may still incur legal costs for a matter even if we
have not established a reserve. In addition, the actual cost of
resolving a legal claim may be substantially higher than any
amounts reserved for that matter. The ultimate resolution of a
pending legal proceeding, depending on the remedy sought and
granted, could materially adversely affect our results of
operations and financial condition.
For more information, refer to Note 15 (Legal Actions) to
Financial Statements in this Report.
Wells Fargo & Company
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