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Blame compliance for banks’ totalitarianism and the loss of traders’ chat rooms

Bankers are now some of the most watched employees on earth.

Bankers are now some of the most watched employees on earth.

As we go into 2014, traders in investment banks face a very different landscape: they’ve lost their chat rooms and the vital market color these provided.

Compliance departments are largely to blame.

Back in 2010, before the LIBOR and FX manipulation scandals, a compliance analyst reviewing a sample of Bloomberg messages might have found a flow alluding to a trader being asked to do a favour in return for champagne, girls etc. They might have matched the traders’ FX trades against market prices using a market pricing tool, found no spikes on these trades (Why would they? The market was rigged) and reluctantly decide to speak to the trader and his desk head anyway. The trader would have said it was just normal market banter. And the compliance analyst would have closed the issue without any further investigation.

To make matters worse, audit trails on chat rooms at that time were hard to fathom. People would share passwords and room accounts – making it difficult to work out who said what.  Nor does it help that, pre-Jerome Kerviel; monitoring/surveillance was the ‘Cinderella’ function within compliance. Monitoring/surveillance teams were usually staffed by junior members of compliance and looked down upon by their more senior advisory colleagues. Simple box-tickers, they could not effectively raise issues with the front office. No wonder things got missed.

Since the LIBOR scandal, this has all changed. Some compliance monitoring/surveillance teams have morphed from one or two employees into double figures, with those people doing nothing but monitoring electronic messages. However, the question remains whether they really understand what they’re looking for – are they effectively automatons looking at a list of known keywords provided by their external law firm, such as FIX or champagne?

Either way, they’re unlikely to find much. Unfortunately, we’re now approaching a totalitarian-type situation where all non-company mobile devices will be banned from the trading floor, where signal jammers will ensure any smuggled devices are blocked, where trading floor staff will have to hand in any non-company mobile devices at the door and retrieve them once they leave. All firm-issued mobile devices will be channeled through a recording and surveillance platform. All web cameras will be blocked.

Thanks to the failings of compliance, this is the world we now live in. The new measures will prevent any short term market abuse opportunities from arising. They also remove a lot of the camaraderie of the trading floor. Bankers are now some of the most monitored people on the planet.

*James Reynolds is the pseudonym of a compliance consultant who spent long years championing the cause of effective message monitoring in investment banks, and who mostly went unheard.  

Comments (2)

Comments
  1. Good news item, at least someone’s had the balls to write about the missed opportunities which would have spotted this behaviour. Shame the box ticking Compliance culture still exists, it certainly does in my bank, FIX me a glass champagne ;-)

    City or the Wharf Reply
     
  2. Good news item, at least someone’s had the balls to write about the missed opportunities which would have spotted this behaviour. Shame the box ticking Compliance culture still exists, it certainly does in my bank, FIX me a glass of champagne :-)

    City or the Wharf Reply
     

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