Confessions of a compliance officer: A mighty banker crashes to earth
04 Jun 2018

Have you ever worked with a ‘spoilt rotten’ star trader before, watched him feted by bosses and get his or her own way – yes, even with compliance matters!

What ever becomes of such an individual?

A London-based compliance officer looks back, aghast, at the time he worked with such a person and discusses the ups and downs. The compliance officer does not wish to disclose his name or other details.

I would like to relay my experience of the Star Trader Syndrome, where due to his ability to bring money into a bank, the senior management of a financial institution indulges the star trader and affords him a very considerable degree of latitude that would not be extended to other employees in his business conduct.

Let’s call this star trader, or mighty banker, Michael.

According to the London Head of Fixed Income at a bank where I once worked, Michael made considerable profits for him in contrast to most of the teams who reported to him, who, more or less, broke even on an annual basis.

There were unsubstantiated rumours that Michael received his bonus on a quarterly basis in contrast to all other staff within the London bank who received their bonus annually.

There were also rumours that there were details of a number of complaints from female staff on his Personnel file.

Michael would have his own unique process for hiring junior staff that was not used elsewhere in the London bank.

He would hire new graduates straight out of university on a six month contract with the promise that if they did well they would be offered a permanent role in an investment bank.

Consequently, as they were beholden to him, he exerted great power over them.

Once on a visit to the Head Office in Europe, I asked someone whether he knew Michael.

When he confirmed that he did, I asked him what he thought of Michael. He responded “He’s a slave driver” but he immediately corrected himself. “No, a slave driver has to worry whether the slaves are able to work tomorrow morning. Michael doesn’t worry about little things like that.”

Contempt for compliance

Michael had a team in New York that reported to him.

He decided to transfer one of his New York traders to London.

We, in Compliance, advised Michael and the trader, both verbally and in writing, that he would not be able to start trading or discussing prices with clients until the trader’s FSA registration had come through.

In order to monitor his adherence to our instruction, we decided to obtain copies of all the trader’s emails covering the period from the start of him working in London up to the time of his FSA registration coming through.

The emails appeared to show that the trader was trading and discussing prices with clients in contradiction to our instructions.

We asked the trader to explain the contents of the emails.

He agreed that it appeared, at first glance, that he had ignored our instruction.

However, he advised that he had given his email password to his colleague, who sat next to him and who had responded to emails addressed to the trader and although it appeared that the trader was responding to his emails, it was actually his colleague was responding to the emails.

The colleague confirmed the trader’s version of events.

No disciplinary action was taken against Michael, the trader or his colleague.

In time, it was decided to close down Michael’s desk in New York and transfer the clients to London.

However, all the New York clients had to go through the London Know Your Customer procedure before anyone in London could trade with them.

A Compliance colleague noticed that a New York client had traded before the completion of the London checks.

He investigated the trade and noticed in the IT system used by Michael’s team that there had been ten amendments to the trade.

The final amendment to the trade was to allocate the sales credit or commission on the trade to the New York trader who had just transferred to London.

As a result of this, the trader had a written warning placed on his Personnel file.

On his return from lunch one day, my Compliance colleague was refused access to Michael’s trading system.

So, he queried this with the IT Helpdesk. They advised that Michael had instructed that his access to the system be withdrawn.

Access was very soon restored.

No action was taken against Michael.

More ding dongs

On another occasion, I was chatting to to a middle office colleague, who supported Michael’s team, about last night’s football.

Michael walked by and noticed that his trading system was open on my colleague’s screen.

He immediately said to me “You are not allowed to look at my system.”

I retorted “I am in Compliance. I will look at any system that I want to.”

“No. I am not allowed to look at Compliance systems, so you are not allowed to look at my systems” he said.

I ignored him, but in those comments, Michael demonstrated his attitude to Compliance issues.

There was also the time when we, in Compliance, advised him that he would have to put a standard disclaimer at the foot of term sheets and we provided him with the appropriate form of words.

He undertook to include the disclaimer on the term sheets.

Sometime later, we checked some hard copy term sheets to see whether the disclaimers had been included.

There were black smudges right across the foot of the term sheets. We then inspected the soft copies of the term sheets.

We noted that the disclosures had indeed been included on the term sheets, but they were in the smallest possible font, so that when the term sheet was printed on a sheet of paper, the disclaimer appeared as a thick black smudge.

We discussed this issue with Michael. His attitude was: “I have included a disclaimer on the term sheets as you requested.”

“You did not tell me that the disclaimer had to legible!”

No action was taken against Michael as a result of this incident.

KYC uncertainty

A member of the bank’s Client Onboarding team approached me to advise me that it took three attempts for a member of Michael’s team to onboard a new client.

On the first occasion, the due diligence did not confirm the client profile presented to them.

When the new client details was resubmitted to the Onboarding team, the profile had completely changed.

Again, the due diligence did not match the client profile as resubmitted.

It was only on the third occasion that the due diligence supported the latest client profile.

As a result of this saga, I sent an email to Michael saying: “Do you think some people might think that the member of your team doesn’t really Know The Client if he submits three completely different profiles about the same client?” and “Do you think some people might think that your team member says the first thing that comes into his head that he thinks will get through the due diligence process?”

Michael got very upset at my email.

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Fallen star

Five years after I left the bank, I bumped into Michael in a street in a London suburb.

I greeted him by saying “Hello Michael, are you still ripping off little old ladies?”

Once he recognised me, he said “No, recently I have been sacked by the bank.”

Later that day, I checked with my old Compliance colleagues at the bank.

They told me that as far as they were concerned he had gone on holiday.

They were intrigued at what I had told them, but they had not heard that he had been sacked.

Perhaps, Michael was a casualty of the new culture compliance sweeping through the UK financial services industry!

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This article is expressing personal opinions and is meant for information purposes only. The article does not intend to replace professional or legal advice. It is recommended that readers seek independent professional or legal advice, or speak to authorised persons/organisations.

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