Shanghai-based brokerage Everbright Securities hit the headlines in recent weeks after a massive trading error – and subsequent cover-up attempt – resulted in an $85m fine and the resignation of the company’s president.
Unlike similar huge trading losses in the West – such as recent Goldman Sachs blunder – which were undoubtedly caused by human error, Everbright’s trading mishap was reportedly caused by a software glitch. But can this mishap ultimately be attributed to a lack of suitably experienced candidates within China’s financial services sector?
Anecdotal evidence suggests that the Everbright scandal came as no great shock for finance professionals in China. Indeed, it seems that the scenario is reflective of the difficulties that the country’s relatively immature banking market has created, and has highlighted several issues routinely faced by the recruitment sector.
Conversations with professionals who are recruiting in China have led me to believe that there is still a real shortfall of talent. Financial institutions are typically looking for experienced candidates who are also fluent in Mandarin. However, both employee skill-sets and the software that these professionals use are generally less mature in Eastern markets when compared to Europe and the US. Therefore, employers looking for ‘Chinese speaking, international thinking’ candidates may find that sourcing them is easier said than done.
There is no doubt that inherent cultural differences play a huge part in the challenges that recruiters and employers working in China must overcome. Business in the region is not black and white, and this culture of ambiguity can be somewhat difficult to navigate. From a legislative point of view, rules may – quite literally – be lost in translation. Because interpretation is often conceptual rather than direct, there is definite room for misunderstanding. For this reason, detailed regulation and compliance is not as straightforward as it may be in more established markets. Needless to say, within financial services, this can have profound consequences.
We can surmise that, given a more complex and established market, Everbright’s coding issue may have been flagged at a less critical stage. In fact, according to reports, the organisation’s internal system never passed its risk assessment test – and yet it was trusted to manage trading.
Despite the fact that the scandal was technically sparked by a software error – somewhere along the line there is no doubt that personnel ultimately had a part to play. In China there is a long established local culture of fitting in and not rocking the boat; and from my own experience – and conversations with numerous senior professionals with a background in the region – I can confidently hypothesise that this was a contributing factor. While there is a certain amount of trepidation associated with ‘upsetting the boss’ regardless of geographical location, whistleblowing is now encouraged in many more established markets. In China however, circumstances are different.
It is safe to say that China’s economic growth has been extraordinary, averaging about 10 per cent a year for the past three decades. But the country’s booming economy has spawned a generation of ambitious professionals who are determined to succeed – whatever the cost.
The cultural acceptance of the widespread desire for instant success is demonstrated in the somewhat notorious Chinese phrase - Sheng Zhi Jia Xin – which literally means "promotion up, salary increase". But the somewhat excessive punishment that Everbright has been subject to emphasises the fact that this culture needs to adapt to encompass the importance of accountability.
The China Securities Regulatory Commission (CSRC) has fined the brokerage a record 523 million Yuan – more than half its 2012 profits. It has also banned four employees from China’s securities market for life, including Xu Haoming, president since 2005, and barred Everbright from proprietary trading in the stock and futures market. I can only assume that by holding management responsible for the actions of traders, China hopes that valuable lessons will be learned.
The on-going liberalisation of China’s financial markets relies on a more mature and responsible working environment. And now that government bond futures have returned to China ¬- nearly two decades after a trading scandal that led to them being banned - it is more important than ever that organisations have the right talent in place to manage an ever more sophisticated market.
China’s banking sector will, of course, continue to evolve. But the ultimate success and resilience of the sector relies on its ability to attract and retain professionals with not only the relevant skills and experience, but also the tenacity to speak out.
Richie Holliday is chief operations officer for Asia Pacific at Morgan McKinley.