UBS Rogue Trader: The 3 C’s of Why This Will Never Go Away

October 2nd, 2012

When I saw this article on the BBC news site I almost forgot that it was a year ago when Adoboli was arrested, which itself was a year after Jerome Kerviel’s fun and games at Societe General, which was a year after Raj Rajaratnam, the founder of hedge fund Galleon Group was caught, which was a year after….. Get the picture?

Why will these scandals never go away? It would be obvious to respond by saying “because that’s where the money is”, as did Willie Sutton, the infamous US bank robber, who was asked why he robbed banks. Clearly there is an element of bees around a honey pot. But we are talking about internal robbers not external ones. Just as egregious and far more dangerous and damaging to the reputation of the bank itself. Am I right UBS?

In my view there are 3 good reasons why this will never go away and while these frequent scandals should no longer surprise the best of us.

Call it the 3 C’s:

Character: traders have egos; machismo; arrogance and a competitive impulse over everything they do. That is why they are recruited into dealing rooms.
That is why they succeed in this environment. Their DNA will push them to win at all costs.

Control: it has become clear that most banks are too complex to be able control all activities. If you want to cheat, you can find a way. Systems are not watertight (that is an understatement, right?), and people are infallible. Policies and procedures can go some way to create a framework but their assurance is proving tough.

Culture: no matter how many checks and balances a bank puts in place will address this issue, if the tone from the top is one of greed, making money at all costs, and treating the customers as “muppets”. The right culture for risk taking and ethical behavior that is reinforced at all levels of an organization, and supported at recruitment, creates the framework for the more formal controls.

Until banks understand this, then it will be difficult for the Chief Executives and Chief Risk Officers to be able to confirm to Regulators that this will never happen on their watch.

Keith W. Waitt
President & CEO
Consultancy Matters LLC

Category: Uncategorized

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