$18 million plus for poor Risk Documentation.


I am no longer amazed by the missteps of any financial organization. The incentive policies and amalgam of personnel with widely differing views (borne out of previous financial organizations) can lead to a cocktail of disaster.

When will the financial institutions learn? Today, policies and standards seem to be written in a vacuum, only to see the light of day when regulators call. However, it appears we do have a benchmark: a well-understood policy is worth $18 million, plus costs, time and energy.

Recently, John Banerjee, a former senior currency trader at the Royal Bank of Canada, sued his ex-employer for “unfair dismissal.” In his lawsuit, Banerjee claimed, among other things, that RBS had an “incoherent and inconsistent” global FX policy that no one bothered to read.

More specifically, the lawsuit alleges the following(1) the fine print of RBC’s FX policy was “inconsistent, unclear” and “problematic,” making compliance nearly impossible; (2) RBC’s FX policy went unread among employees working on the FX desk at the bank’s London and Hong Kong offices; and (3) RBC’s head of FX spent less than three minutes on her own annual attestation.

In response to these allegations, an RBC spokesperson said, in a statement, that the bank has controls in place to uphold its principles, policies and procedures. “We conduct ongoing thorough reviews of these processes to protect the integrity of our business and retain the trust of our clients,” the spokesperson elaborated.

It is clear that employees need to comprehend and understand fully the policies under which they are expected to perform their duties; however, policymakers are still responsible for ensuring that the standards they create are extremely clear and thorough.

These days, with reputations so easily won and lost, it is essential that risk documents are fully reflective of the current working environment and fully supported by management. Moreover, robust and viable feedback is an integral part of good corporate governance, because this is the only way to ensure that policies and procedures have not in any way been distorted during the dissemination process.

Parting Thoughts

Clearly, the lessons of the past have not been learned by all financial institutions. Policies and standards, at least in some cases, are only double-checked and reinforced when regulators come calling.

Surely, it is now time for both the board and senior management to take responsibility for developing and communicating policies; only then will they know for certain that their actions speak louder than words.

Please be smart, I urge you, and get an independent assessment of your firm’s risk policies and procedures. After all, it could save you $18 million, plus costs, time and energy.

John Thackeray is the founder and CEO of Risk Smart Inc. Over his long career, he has held many risk positions, including CRO posts at Societe General and Penson Worldwide Holdings, where he interacted and engaged with US and European regulators. He frequently contributes articles on his risk insights to the Financial Executives Networking Group (FENG). #risksmartinc