There has been more emphasis on the responsibility of the individual in recent years as regulators have dealt with financial misconduct, but will this ever actually succeed when too many institutions – banks especially – have such a complex and over-lapping management structure? 

How can an individual be responsible for something when they are a “co” head of business and into the bargain report to about seven people, all of whom are also “co” heads of something?

I raise the point because I have just been reading a very interesting opinion piece written by someone who has been in the risk function at COO level for decades, that looks at the findings of the Australian enquiry into conduct in the financial services sector.

The conduct being investigated is not unfamiliar to readers of this column – customers have been allegedly lied to, ripped off and over-charged, amongst other things – and the writer is very much of the opinion (and I happen to agree, hence why I am highlighting this) that a big part of the problem is that regulatory changes over the past decade have merely served to make the oversight and governance function more complex and managed collegiately, rather than by assigned individuals.

I fully accept that there are issues with responsibility being in the hands of just a few people – after all, if a Markets business is employing 2,000 people, how can a handful be reasonably expected to effectively manage them? But that ignores the importance of cascading responsibility. It is about the overall structure of the governance framework, not just that at the top of the tree.

I recall a friend taking a senior job in the FX business at a top 10 bank and it taking quite some time for them to actually join – even though they seemed ideally suited to the role (as was highlighted at the first interview, which was initiated by the bank itself). The reason was this person had to go through more than 30 interviews!

To me this is a prime example of how banks have created an environment in which people can easily avoid responsibility by making it a collective issue. In my friend’s case they were interviewed by at least 15 people they had absolutely no contact with in the first two years in the role, thus it was clearly a case of someone thinking, “this person will be highly paid, if they stuff up it will land on my desk, how do I avoid that…?” 

It is wrong, perhaps to blame the individual, after all they are just human. More it is about pointing the finger – again – at the institution and the people at the very top. It should not be difficult to assign responsibility depending upon a staffer’s level of seniority. 

There are people in the UK seriously concerned about their responsibilities under the Senior Managers’ Regime, one friend observing a couple of years ago that something could go wrong in their institution’s Polish unit and they would be accountable. This is where we need proportionality (a word often used in when discussing the FX Global Code I would point out). 

There should be, in my friend’s case, someone in the Poland office who is explicitly given responsibility for what goes on in the business there. This is why escalation policies are so important; they enable this “waterfall” concept of responsibility to exist (and yes, I do understand that the top echelons may be swamped with concerns – in which case they either mark the manager down in their appraisal and bonus review or the institution has a serious problem!)

Too often institutions hide behind excuses (inadvertently provided by the regulators) that the regulations are too complex and require multiple layers of defence, and that may be the case, in which instance the regulators should do something about it.

Taking responsibility is not difficult – ask any trader. They have all had really bad days, weeks, months or years, and with one or two notorious exceptions have accepted matters – it goes with the job. The problem in the current environment is that there exists a zero tolerance policy when it comes to behaviour and that makes people more reluctant to put their hand up when they make a genuine mistake, which is the opposite of what we should be seeking to achieve.

It is also difficult to put one’s hand up when you are only partly responsible for what has occurred because you are a “co” – and similarly it is hard to define who exactly should be responsible when there exists a collective mea culpa

There is no doubt that the financial services industry needed reining in because innovation in multiple forms had created a creep into the grey areas of conduct – often innocently and without intent. I would argue, however, that we now have matters in control and as such it is time for a complete reappraisal of how we oversee and govern businesses.

This should be followed by a reconstruction of the regulatory and oversight process that, as argued in the piece I referred to at the top of this column, returns to the culture of proportionate responsibility and accountability. Once we get there, we can have greater confidence in the financial services industry – and that is important for everyone, including those employed therein.

Colin_lambert@profit-loss.com

Twitter @lamboPnL

Twitter @Profit_and_Loss

Colin Lambert

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