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The Other ‘C’ Word

Clients still ask me about the other ‘c-word’ from time to time. By ‘c-word’ I mean, conduct. They ask me – do we really still need to offer training on conduct?

Whilst I empathise (even as a trainer!) the answer if fairly straight forward. Yes! We need look no further than conduct cases that continue to offer us examples of what not to do.

Citi suspends senior bond trader over alleged theft from canteen

One of the highest-profile traders in Europe’s junk bond market was suspended after alleging he had stolen food from the canteen!

Same, same but different?

But, of course this is nothing new…Japan’s Mizuho Bank fired a London banker in 2016 after he was caught stealing a part from a colleague’s bike worth about £5!

And let’s not forget the infamous Jonathan Burrows, a former BlackRock executive who was banned by the FCA back in 2014 after he was found to have repeatedly dodged paying the train ticket for his commute to the City.

Once is a mistake, twice is a pattern, three times a habit?!

Some conduct issues have darker links – Barclays boss Jes Staley said he “deeply regrets” his connection with sex offender Jeffrey Epstein. His comments come after Barclays revealed that the FCA are investigating the chief executive’s links with the disgraced financier.

Staley admitted he maintained contact with Epstein for seven years after his conviction

The probe will focus on Mr Staley’s “characterisation to the company of his relationship” with Epstein.

It’s not the first conduct issue for Mr Staley. The bank was fined £11.6m in the US and Mr Staley, who holds a position as a Senior Manager (SMF) under the SMCR regime was fined £642,430 for breaching rules by attempting to find whoever raised concerns over an executive Mr Staley hired.

The bank received two letters in 2016 criticising the decision and raising concerns about the executive’s experience. Instead of being handed to the bank’s investigations team, one of the letters was distributed among senior managers, including Mr Staley.

In another embarrassing episode in 2017, Mr Staley fell for an email prank when a disgruntled customer pretended to be his boss at the time, former chairman John McFarlane.

Conduct Counts

Now let’s be clear this is not a blog about Barclays or any one individual, but it is something of a call to arms.

As I mentioned at the start, we speak a lot with clients who are somewhat conflicted as to whether conduct training is still needed. ‘We’ve already done so much, is it necessary, how can we do something impactful yet different?’

We worked with many clients off the back of the financial crisis and I am sure everyone reading this has been through one or more iterations of a training program(s) as conduct has embedded into their organisation.

The common theme here is this; the difference between what you can do and what you should do is judgement.

Poor judgement in virtually all cases is what leads to conduct issues. See libor, FX scandal etc etc.

So, think not of this as a need for prescribed training but as a need to create a forum to share mistakes, work out the kinks and continue to drive better conduct.

Taking Action

It remains a challenging environment within financial services with continued regulatory scrutiny and ongoing geopolitical influences.

There is notable conduct fatigue among those who feel they have been there, seen it and would never act in such a manner. Many firms have worked tirelessly to define conduct risk, to develop frameworks and champion good conduct.

Equally, for those new to the industry it’s difficult to not feel you’re stepping into a world of debilitating rules, regulations, policies and procedures. When I run graduate classes the focus on the misconduct surrounding social media is something that gets a few initial laughs before the reality kicks in. Yes, what you do or say outside the office forms part of your overall competency.

The FCA Training and competence handbook supports the FCA’s supervisory function by supplementing the competent employees rule for activities. In this sourcebook, competence means having the skills, knowledge and expertise needed to discharge the responsibilities of an employee’s role. Competence includes achieving a good standard of ethical behaviour.

The 5 Conduct Questions

While derived from wholesale banking firms, feedback is a good weathervane of the FCA’s views on this topic, with governance being one of the cross-sector priorities where it has a permanent and continuing focus.

The FCA introduced the 5 Conduct Question (5CQ) programme in 2015 to help firms improve their conduct risk management and drive cultural change.

Key headlines we can learn from this are:

• Many firms made significant strides in improving their policies, processes, training and identification of conduct risk

• The FCA is concerned that overall progress or embedding in some cases has been patchy or in danger of stalling

• Regulators remind firms of the four important drivers of behaviour: Purpose, Leadership, People (approach to reward and management) and Governance. The importance of corporate purpose has become increasingly recognised as a key factor in engaging staff and potentially improving conduct

• Firms should recognise that culture and conduct improvement does not have an end date

Perhaps the last bullet is the key and goes someway to answering the ongoing question, there is no end date.

A Different Way?

It’s easy to sling mud, look at a bunch of misconduct issues elsewhere, tick the box and say it would never happen here and we’ve done our annual training for another year.

However, the most impactful sessions we have been involved with are those where firms are prepared to dig into the internal cases. Engaging with learners and discussing the intricacies of cases tell the true story and resonate most with your employees and provide the best lessons to learn from.

Yes, give industry context and learn vicariously from others but spend time to work through the lessons of the past.

Factor in risk assessment and other work that links in, your employees need to know the training is related to their day-to-day.

Shake the stick where needed – conduct dashboards, KPIs and breach stats are not there to simply update management. Share these within the training, show the hot spots and where you are facing conduct challenges. Is it complicated PAD policies that are the issues, a lack of training or something else/worse?

Training can and should serve to stir up debate within the session, rather than just being seen as another mandatory training session. Have key stakeholders join, maybe sit at the back or even contribute to the debate. So often the positive feedback we hear is from the simple action of getting the business voice and Compliance/HR in the same room, whilst often being facilitated from an external trainer. Not that we are the oracles, far from it but creating the right environment is key.

Finally, a few takeaways to think about today with conduct risk

i) Support and work to avoid isolated decision making in your firm, particularly of relevance with current remote working conditions

ii) Importance of professional mentorship to help drive conduct and learn from those who have experience

iii) Employees should not only be encouraged to raise issues if they see them, but expected to raise issues

iv) Goal setting – goals need to be specific, challenging yet realistically achievable

v) “Tone at the top vs mode at the middle”. Regulators are rightly focused on tone at the top but are now moving that focus down to the middle. Does that align to your firm?

Need some help or want to know more, check out our conduct training offering:

🎧 And if you would like some further listening, check out: Barclays and the legal fight over a ‘controlling mind’ Behind the Money is a podcast from the Financial Times that takes listeners inside the business and financial stories of the moment with reporting from FT journalists around the world.

A costly investigation into the conduct of senior Barclays bankers during the 2008 financial crisis has raised questions about what it means to prosecute allegations of corporate crime, and whether Britain’s fraud laws need overhauling.

About this author

Matt Fotherby

Financial Markets, Compliance & Regulations

Matt Fotherby

Matt is our Founder and a passionate trainer.

His interest in education stems from his 10 years as an Account Executive looking after Global Hedge Fund and Asset Management clients. This led Matt to join the coveted Financial Markets Education team at UBS, a unique in-house education team that specialised in running a curriculum of financial market and product classes for both UBS employees and clients. Matt was responsible for building out the client offering; managing programs, creating content and teaching courses.

As financial markets entered a significant period of regulatory change Matt pivoted to take his client experience and market knowledge to focus on Regulations and Compliance topics.

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