Tuesday, 10 February 2009

At least equal stature with the trading desk

Yesterday in the FT, from an article on risk by Lloyd Blankfein, Chief Executive of Goldman Sachs

"Risk and control functions need to be completely independent from the business units. And clarity as to whom risk and control managers report to is crucial to maintaining that independence. Equally important, risk managers need to have at least equal stature with their counterparts on the trading desk: if there is a question about the value of a position or a disagreement about a risk limit, the risk manager's view should always prevail."

Now today we have a report in the Timesonline which shows that HBOS had been warned by Mr. Moore, their Risk Officer between 2002 and 2004, who had then been sacked and replaced by someone with no risk experience. The Times report goes on:

"Mr Moore, a former KPMG financial services expert, said in a previous interview that HBOS had been chasing sales too aggressively and with little regard for risk as early as 2002.
In his written submission to the Select Committee Mr Moore said: “I signed a gagging order at the time in our settlement agreement.”

Mr Moore gave an interview to the BBC in October criticising the approach to risk taken by HBOS.
"I think a concern everybody had [was] whether or not the business was under control," he said, claiming that the bank's priority was switched from risk management to growth under the former chief executive Sir James Crosby, who was subsequently appointed by the Government to lead a review of the mortgage market.
"The retail bank was going at breakneck speed and an internal risk and compliance function feels like a man in a rowing boat trying to slow down an oil tanker. I'm not saying that there were any bad intentions in that but it was difficult to slow things down," Mr Moore said. "

So there you have it - unless the Risk Officers have the clout and the support of the CEO, and the CEO has the support of his shareholders ( not a problem for Goldman Sachs) the momentum that builds up is hard to manage. Perhaps Risk Officers should also have to report directly to the FSA to justify their decisions and to provide more rigour and support in what can be a very lonely and unpopular role.

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