It’s now a month since the senior manager’s regime came into effect in the City of London. If you’re one of the 250 “senior managers” signed up to the new rules, you need to think very hard about how you’re going to change the behaviours of the people reporting to you.
Under the new regime, you will need to show regulators that you have taken ‘reasonable steps’ to prevent or stop the contravention of rules. Fail to do so and you can be personally fined. – Or worse, be charged with a new criminal offence of ‘recklessly causing a financial institution to fail.’
An incident that recently happened to me showed how vigilant senior staff will need to be. Whilst at Heathrow, I went to a foreign exchange counter to buy £150 of Kroner for a short trip to Sweden. The cashier told me that there would be a £3 commission charge, but that if I bought £200 it would be commission free. I decided to buy the full £200. However as he counted the money, he mentioned the total amount less commission. – Whoa, ‘What about the free commission’ I asked? He said no it was £3 for up to £200, 1.5% for £200 and above, and £300 and above free.
The cashier/salesperson was misrepresenting the commission structure to get their daily sales figure up. Either that or I was mistaken, but being an ex-FX trader, who now helps banks with conduct risk issues, and also lectures in behavioural finance, I am particularly in tune to these matters and how sales are framed by salespeople.
The matter may seem relatively minor, but if this is a repetitive and consistent behaviour for this individual – and among the firm’s people more broadly, this firm’s senior managers could face serious consequences. Under the Senior Managers Regime, they could face fines and criminal prosecution. Nor can they just leave the business and escape the risk – liability under the regime continues for 6 years after you’ve left.
Now, given the amount of publicity within the industry and the scale of fines dished out, it’s probable that this cashier had received extensive training around the new regulations. So how come he, and the firm, were still breaching ‘Conduct rules’? The problem is that changing deeply ingrained behaviours and attitudes, acquired and habitualised over many years, requires a huge effort.
The human mind does not recall all relevant information and weigh up all facts every time it makes a decision. Instead , we’re heavily influenced by natural biases, emotional urges, and deeply ingrained habitual frames of reference. – At a one-day presentation skills course I attended I was told that within a few days I will have forgotten most of what I had learned that day. Within a few weeks I will have forgotten almost 99% of what I had learned. It would take constant reviewing, repetition, practice, and reminders to embed what I learn.
How is this relevant for senior managers? They need to be aware that efforts to change employees’ behaviour will need to be far more strenuous than seminars and online courses. They will need to be far deeper, far stronger, and far more repetitive and ubiquitous than in the past. Complacency is a real risk – and so is the danger of someone’s life and career being destroyed because junior employees continue to behave like the cashier at Heathrow.
Steven Goldstein is a former senior rates and FX trader at Credit Suisse, an associate director at Commerzbank and a senior prop trader in the rates group at American Express. He’s now a trading coach with Alpha R Cubed and Chrysalis Performance Coaching.