Crying wolf

‘Red’ Riding-Hood was a confident chap. A senior manager, who had made a lot of money in the financial forest, he always adopted a light touch approach to compliance. This latter failing aside, Red was savvy – after all, he’d talked and performed his way up through Sales. He recognised it was politic occasionally to wend his way through the more familiar parts of the wood, by the noisy trading desks, past the eerily silent quants and actuaries, to see those worriers in the Compliance cabin. They would warn him, repeatedly, to have his corporate governance and regulatory wits about him as he plotted aggressive expansion of market share: watch your promotions, treat your customers fairly, avoid conflicts, set an example. On each occasion he would nod dutifully, come away and carry out some cost-benefit analysis using a risk-based approach of his own – he certainly liked the compliance vocabulary: okay, so, I’m in a controlled function, a CF1, not a CF10 or CF11 mercifully, and I steer pretty close to the wind; now what’s the risk that the FSA wolf will eat me? Those ‘grannies’ in Compliance, if any, are likely to be raw meat first surely. But then he paused, on the latest visit they had harped on about a review of the Handbook that would push more responsibility – anti-money laundering for example – on to senior managers. Was that a poisoned chalice heading his way? Red wondered if the fabled Canary wolf might be licking his chops. No, he comforted himself, look at the Final Notices, barely a top director amongst them, and none from a name. All must be well. Yet he was troubled by the growls in this and past conversations. Compliance had referred him to the FSA’s Plan and Budget for the current year, which highlighted senior management as an Enforcement priority in both wholesale and retail sectors. Maybe, but the Legal & General decision will make them think twice, he meditated, even allowing for the overhaul of the Enforcement process, and the FSA would have to be ultra careful before going against a high-profile individual. Often combative by nature, they would fight like fury, through the Financial Services and Markets Tribunal, and beyond if possible, when their reputation, indeed their entire career was on the line. Red thought about Paul Davidson, the ‘Plumber’, in the Cyprotex contracts for differences case and former Shell chief executive Sir Philip Watts, who, although not named in the Final Notice about misstatement of the firm’s oil reserves, insists that he was identified and prejudiced by its publication. Each had elected to ‘put up rather than shut up’. So Canary wolf might be nursing a few wounds. However, as Compliance was fond of saying, a little too pointedly, he thought, it wouldn’t do to underestimate its cunning. And there were always plenty of punters and those grubby journos baying for corporate blood – even Which? the consumer association, had recently declared that fines for misselling should hit firms harder to drive the treating customers fairly message home. But that would only hit firms’ investors, wouldn’t it, so it was unlikely that FSA would heed the message, Red ruminated. No one wants US SEC style policing of financial services in the UK, it’s just, well, not cricket, he told himself. That said, with corporate activism in vogue these days a hefty regulatory penalty against a firm might prove a useful indirect mechanism to prise out any ‘awkward’ CF1-6. How would that be for a crafty twist on self-regulation? Perhaps it might, after all, be worth his while to glance over Compliance’s comments on the plan to launch a new SCARP with built-in delta hedge against credit default risk in biotech start-ups. Then again…