August 4 2023

She had to go. You simply cannot have the CEO of a bank unable to understand that if a journalist asks you about a live story involving confidential details about a bank customer, the only possible response is “I can’t talk to you about that.” Especially not when a few days later you will be presenting the bank’s results and, therefore, are currently in possession of price sensitive market information. If you can’t keep quiet about the former, how can you be trusted with the latter?

What is surprising is that despite, according to reports, having two PR firms (one of them with expertise in “crisis management”) advising the CEO and another one advising the bank, this issue appears to have been handled in a somewhat reactive way, lacking in joined-up thinking or any coherent strategy. It might be wise to remember the advice given to intelligence officers: “A matter is of the highest possible importance and so should be handled at the lowest possible level.” This should never have reached the CEO’s desk in the way it did. And once there, handled better, it goes without saying.

Politicians and commentators have, predictably, piled in, most of them ignoring why she had to go and drawing the wrong lessons from what has happened, or the one which most comfortably suits their prejudices and obsessions, often filtered through whether they approve or disapprove of Farage.

• Kemi Badenoch, the Business Secretary and Minister for Women and Equalities, sought to remind banks that they must remember free speech and not discriminate on the grounds of political belief. She “hoped” banks would remember this. For the Minister for Equalities not to realise that the Equality Act protects “religious or philosophical belief”, political opinions do not automatically come within this category and it is only in Northern Ireland that public sector bodies (not banks) are under a duty to promote equality of opportunity between people with different political opinions is not encouraging.
• Other Tories have given the impression that they are only bothered about this because it happened to Mr Farage. Unwise. Ms Rose’s actions would have been foolish were it any bank customer.
• Farage himself has suggested that there should be a rolling back of AML and PEP requirements.

This would be a mistake. There is always a problem with rules such as these in that the amount of detail and checking needed can make the process so bureaucratic that it is easy to lose sight of what they are for, why this matters and why judgment should never be absent from the process. But ensuring that banks (and other professionals) are not used by bad actors to disguise their actions and give them a wholly undeserved veneer of respectability is essential if Britain’s finance sector is not to become a shady place for shady people, a risk for any significant financial centre.

Importantly, this row is not just or even at all an issue about political beliefs. Banks have obligations to “know their customer” – something considerably more than simply recording their name and address. Anti-Money Laundering rules are onerous, as are those for Politically Exposed Persons. Additionally, banks have to comply with equalities legislation. The Proceeds of Crime Act 2002 matters too. Quite considerably, given the various criminal offences banks commit if they fail to comply with it. Balancing all these different legal and regulatory requirements requires a proper understanding of all the relevant rules, overlaid with sound judgment.

Knee-jerk reactions rarely lead to good law, as this article explains more fully. Would that lawmakers understood this basic point.

Above all, banks do need to assess reputational risk – both in relation to who they take on as clients, who they do business with and, critically, how and why they exit them, if their risk appetite changes. This all needs careful consideration and even more careful – and consistent – recording and communication. It is not always easy to get it right. But saying that banks should never take into account the reputation of their customers is as absurd as saying that banks should only take on customers whose political beliefs they approve of.

Farage has also raised the “debanking” issue. Ironically, this might also be described as “inclusivity” – not the woolly-headed “I’d like to teach the world to sing” version so beloved of organisations thinking that the appearance of goodness is all that is needed to demonstrate their “values” – but the tension caused by having private profit-making companies provide vital services without which it is hard to be a fully functioning or contributing member of society: bank accounts / social media / transport / phones / internet access. If everyone needs these, should companies be obliged to provide them regardless of other considerations? And if not, who should?

If only there were a trusted and competent state-owned organisation which could provide such services, something like …. Oooh, I don’t know …. the Post Office? If only.

Darren Jones, the Business Select Committee’s Chair, inadvertently touched on this when he commented on the selectivity of the government’s concerns. He compared its rush to express dismay about NatWest’s behaviour, a company only 38% of which is owned by the government, compared to its silence over the Post Office – 100% owned. The government would do well to heed him on this.

Others (I’m looking at you, Rachel Reeves, Shadow Chancellor) have suggested that Ms Rose was bullied and treated unfavourably because she is a woman. (She did this in an interview in which she admitted not knowing the full story. The irony of saying this when commenting on a CEO talking about a matter on which she had not been fully briefed was apparently lost on her.) It is an easy to make – but ultimately misdirected – point. What do the careers of Cressida Dick and Dido Harding suggest then?

More seriously, it masks a more important point. Even a competent, highly regarded person can make mistakes, sometimes serious and career-ending ones. Even the most effective CEO can panic in a crisis and make elementary and stupid mistakes. One reason for needing strong and effective governance and staff with good judgment at all levels of an organisation is precisely to minimise the risk of this. Or, bluntly, to protect senior managers from their own foolishness. It can seem unfair that one error, even a “serious error of judgment”, should overshadow an otherwise effective career, as if all the achievements are not put – let alone weighed – in the balance. But this is one of the burdens of leadership. And why leaders are paid as well as they are.

It is possible for someone to do a good job overall but still make the sort of mistake that leads to resignation or sacking. That is an important lesson for all of us. No-one is – or should be thought of or think of themselves – as indispensable. That too is an important – if humbling – lesson.

Photo by Markus Spiske on Unsplash

March 12 2023

Another weekend and another UK Chancellor announces that the Treasury is working “at pace” (whatever happened to the word “quickly“?) to minimise the fallout from the closure on Friday by US banking regulators of California-based Silicon Valley Bank i.e. to help its UK customers with their cashflow needs.

This bank was the 60th largest US bank and its collapse is the second biggest banking failure in US history. The details will no doubt come out in time but the essence is not very different from the reasons Northern Rock collapsed some 16 years ago: a mismatch between the bank’s short-term liabilities, its long-dated illiquid assets and an inability to fund itself.

It offered loans to its clients at very advantageous interest rates provided the clients banked with them and required little by way of collateral because start-ups tend not to have much of this to offer. Of course, this was a bet that interest rates would stay low. Oh dear! The start-ups now worrying about what will happen to their deposits should perhaps ponder the wisdom of that saying: “If something looks too good to be true, it is.”

Until the markets open on Monday the rest of us can enjoy the following:-

• Venture capital firms – SVB’s client base – forgetting what the “venture” in “venture capital” means.
• Forbes’ 2023 List of America’s Best Banks which included – yes, you guessed it! – Silicon Valley Bank and also put it on its Financial All-Stars List. If you have time to waste, you can even read the methodology for their rankings – here. The data came from Standard & Poor’s Global Market Intelligence.
• Moody’s giving the bank an “A” credit rating, which it held right up to its collapse.

Forbes is not having much luck recently. Their edition titled the “40th Annual Forbes 400″ featured on its cover Sam Bankman-Fried of FTX, which collapsed in November 2022. His youth – 29 – was highlighted. As well as this delightfully revealing quote: “I got involved in crypto without any idea what crypto was.”

(I am, unashamedly, going to toot my own trumpet and remind you – if anyone needs reminding – that when these scandals and collapses happen, there is always a bloody great clue (often more than one) staring you in the face. Though they don’t always get the full colour treatment on the cover of prestigious magazines.)

Let’s hope the similarities to 2008 end there.

Photo by: michaela-fUYnzXrVmhE-unsplash.jpg

August 23 2021

A handy guide to the stages of any project.

Applicable to recent and current events in ….. well ….. any number of sectors, really.

1. Enthusiasm

2. Disillusionment

3. Panic

4. Search for the guilty

5. Punishment of the innocent

6. Praise and honour for the non-participants.

Photo by author