Managing the Risk of People Making Bad Decisions
Another day, another banking scandal!
Just this week, the New York State Department of Financial Services (NYDFS) hit Barclays bank with a huge fine of US$ 150 million, as a result of the bank admitting it had “engaged in certain misconduct regarding the trading of benchmark foreign exchange (“FX”) rates from at least 2008 through 2012 in violation of the New York Banking Law and other laws” [1].
Continue reading “Barclays – Another Code of Conduct failure!”
A recent research report [1] suggests that an ethnically diverse group is better at making decisions than a group that are all alike. These results build on other studies that show that diverse groups in general are better at making decisions [2]. Irving Janis, who first identified the concept [3], argues that ‘homogeneity’ is one of the key prerequisites for Groupthink, which is a bad outcome. So all we have to do to prevent Groupthink is to insist on diversity, especially at the Board level?
Whoa, hold on, it is not as easy as that! It turns out that it doesn’t come down to ‘diversity’ per se but ‘Trust’.
In July 2104, the recently divorced Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) came together once more to produce a Joint Consultation Paper entitled ‘Strengthening accountability in banking: a new regulatory framework for individuals’ [1]. Following the scandals of the GFC, LIBOR and PPI, the regulators believe that holding “individuals to account is a key component of effective regulation”. The regulators pointed out that their extensive proposals were intended to “create a new framework to encourage individuals to take greater responsibility for their actions, and will make it easier for both firms and regulators to hold individuals to account”.
The key words throughout the consultation paper are ‘individual’, ‘responsibility’ and ‘accountability’.
People Risk Management 