Everyone knows that banks contain some bad eggs. Why else would FX traders be referring to themselves as a ‘cartel’ and go about threatening things like, ‘mess this up and sleep with one eye open at night’?
But what if it’s not entirely the nasty traders who are to blame? What if it's the clients who've been driving the nefarious goings-on in banks Share on twitter– or at least acting as the Sat Navs?
One senior FX headhunter who’s in touch with many of the displaced FX traders in London says they’re aggrieved by lack of culpability attributed to clients. The clients were, allegedly, a big driver for the bad behaviour. “These traders appreciate that they were clearly in the wrong, but it’s utter, utter, naivety to assume that the bad behaviour was their own invention,” he says – speaking off the record as his contacts are ‘touchy.’ “In a lot of cases, the clients put pressure on the traders to make sure the rates were where they wanted them to be Share on twitter. The clients benefited – and not just hedge funds, but institutional fund managers. They’re all competing against each other. They needed an edge.”
Preposterous as this sounds, The Wall Street Journal’s coverage of the dismissal of Stuart Scott, the London-based head of FX trading at HSBC, suggests there might be something in it. Scott is alleged to have leaked confidential client information to a major hedge fund, says the Journal. That information is said to have netted both the fund and HSBC, “large profits.” If true, the implication is that Scott may not have been acting unilaterally.
A even clearer case of client-driven malfeasance comes from the recent equity research scandal. As the Financial Times pointed out, the equity researchers who wrote partial reports about Toys R Us ahead of its IPO were encouraged to do so by the private equity investors who were taking the company public. “It was a very tough deal environment,” Brad Bennett, Finra’s chief of enforcement reportedly said. “The private equity investors were very aggressive that they wanted research to be aligned.”
Where does this leave bank employees who’d like to play by the rules, but who need to satisfy clients if they’re to keep hold of them? Compromised is the answer. Tougher regulations and tougher regulators can provide bankers with wiggle room when clients ask them to bend the rules. Line managers in banks need to stand by their staff if they lose client accounts through a refusal to engage in errant behaviour. But maybe regulators also need to turn their attention to clients demands of the bankers who work for them? The malignity in banks may have an external source.