Are FSA fines just another acceptable loss event?
Posted by Jim Wickenden on Wed, Jun 29, 2011 @ 06:03 PM
According to Wolters Kluwer Financial Services the amount of fines issued for the first quarter of 2011 amounts to nearly £14 million. Is this a lot? Of course winning the lottery and walking away with £14 million (about £9 million after tax) would truly be classified as a windfall to say the least. But statistics are always a bit of a bug bear to me when in the latest Operational Risk and Regulation issue, Norwich & Peterborough Building Society agreed to pay customers £92.3 million for mis-selling a product and Credit Suisse settled a lawsuit for £70 million due to improper business practice. These are just two of the litany of loss events that occur on a continual basis, yet the FSA lauds a fine total of £14 in three months. At this rate the total fines issued would be £56 million, less than two settlements for fraudulent practices by just two organisations.
This brings me to my point. It isn’t to vilify the industry, far from it. After all it is the financial industry that truly does make the world (financial and political) go round, but surely we must have some sense of perspective when we try to convince ourselves that we are getting to grips with risk management? I have noticed that the number of high profile theft and fraud loss events have failed to make the Infamous Five in OpsRisk&Reg but improper practices has taken its place. Sound close to the same thing in my book except one is a personal act and the other companywide. If an organisation advocates a policy that is evidently against the law of the land, let alone FSA regulations, then one person somewhere must have sanctioned it. Corporate theft and fraud to me is more insidious than individual corruption.
To add another twist to the much lauded £14 million of chest-thumping self-congratulation, Wolters report that most of that has gone to guidance papers: administration. Do financial firms really sail so close to the wind that they don’t know the difference between right or wrong? Please, please, please say it isn’t so. Of course they do, but apparently the FSA don’t think so hence the need for pamphlets and guidance materials.
I have to believe that reputational loss is the real club the FSA is using to deter such behaviour because I doubt that the occasional fine that barely covers their BMW leases will stop malpractice in all its forms. I will be interested to see whose names pop up in the next few editions of the Infamous Five and if they are repeated.
Rather than bleat on about the morality of it all, I think I’ll simply enter the Infamous Five every month and let you decide if there really has been a shift in the way operational risk is handled.