Who understands "Conduct Risk"?

Conduct risk seems to be the focus of every regulator this year and not unrelatedly the opportunity of choice for many management consultancies.

As a term it was something I became aware of in late 2013 and I am still trying to work out what it really means. Maybe I shouldn't say that, but it is true and if there is one thing that annoys me, it is something I don't understand.

I am not sure who coined the term first, but it is something that the Financial Conduct Authority adopted early on - probably not surprising when you think about it. It is also some the OECD is urging its members to bake into their regulation and most recently I have seem the Bank of England / Prudential Regulation Authority also make a play.

Googling the term does not bring out a clear definition, at least not one I can find. There is the "FCA Risk Outlook 2013" which contains many references to conduct risk , but does not seem to define the term other than indirectly when referring to

"A range of inherent factors (that) interact to produce poor choices and outcomes in financial markets."

The factors are then illutrated as

A quick look shows this to be anything, but a simple topic in the eyes of the FCA.

The FCA has also referred to conduct risk in the context of “consumer detriment arising from the wrong products ending up in the wrong hands, and the detriment to society of people not being able to get access to the right products”.

This feels like something that benefits hugely from hindsight. It reminds me of the Official Secrets Act that I signed many years ago and am still covered by! It was put to me simply that it meant that "they" could "get" me if at some point in the future they chose to do so and I didn't need to read all the detail.

My search then expanded to include the OECD and found the following

Principle 6: Responsible Business Conduct of Financial Services Providers and their Authorised Agents

Underlying assumptions

1. The principle of responsible business conduct is important in order to ensure that financial services providers and authorised agents act fairly, honestly, professionally and with due skill, care and diligence when dealing with consumers. Duty of care is necessary in addition to improved transparency because consumers have bounded rationality and therefore cannot be expected to always make decisions that are in their own best interest.

2. Responsible business conduct entails the following elements, where financial services providers and authorised agents:

a. avoid as far as possible or adequately manage conflicts of interest, in order to prevent detriment to the consumer.

b. have the necessary resources and procedures in place for safeguarding the best interests and ensuring equitable and fair treatment of their consumers.

c. communicate with the consumer in a timely and accurate manner, and their language used is clear and comprehensible to the consumer.

d. have appropriately qualified and trained staff to sell the products concerned and/or provide advice to consumers and execute the contract/transaction.

e. have remuneration designed in a way which encourages responsible business conduct.

3. Financial services providers and authorised agents have a duty to be responsible for the actions of their staff and agents acting on their behalf and therefore ensure that their staff and agents maintain appropriate standards for conduct of business to ensure compliance with laws and regulations and fair treatment of customers.

The items listed under (2) feel like something I can work with. Points (d) and (e) also explain why in the organisations where this is already a major issue it is HR that seems to be running point, but it is clear there is much more.

I can see why the consultancies are keen on this. Just tweaking the current norm is almost certainly not enough. I have heard of firms who are addressing a lot of this through systems ie IT, but that seems to miss the point. This really needs to be business-led, and not sidelined or delegated because it is too difficult. It seems that to be effective a leader in this field will have to demonstrate that they understand:-

• how the business currently works now and have a vision of how it should work
• the dark arts of delivering people-centric change (and that is not necessarily HR!)
• how to manage a diverse and difficult set of stakeholders
• how to navigate complexity with resilience, agility and creativity

Does anyone else have a better definition, understanding or point of view that can be shared?

Herding Change!!!

I wish I had a pound for every time I have heard someone involved in managing change comment that it was like herding cats! But maybe that is just what we need to do and instead of invoking the thought at moments of frustration it is something we should be embracing and learning to do better.

Readers of this blog will know that I have commented on how we need to find a better way to deliver business change in this modern world where the speed, complexity and scale of developments keeps growing and is clearly outpacing the ability of traditional methodologies to deliver and adapt. Along the way I have often commented that I play human chess, getting the right people in the right places at the right time to do the right things. In this "game" there will always be some "strays" that have to be brought back to the main group (or maybe left to go their own way!).

This feels more like "herding" (hence the image above) than "managing" in the traditional sense. The trouble is that most of the "herding" metaphors I have come up with have as many undesirable connotations as useful ones. In using a "cattle herding" analogy I will doubtless upset stakeholders who will take offence at being considered as cattle while project staff  will probably resent the label "cowboys" and the behaviours associated with that term.

In contrast if I liken the management of projects to herding sheep, I can offend stakeholders again(!) and invoke a central control model where "shepherd" controls all the project workers (dogs).

Despite these risks I would like to examine the analogies a little further as there are some very relevant parallels.

Let me look at the cattle herding parallel first. It seems to me that the "trail boss" performs the role of project manager, understanding where the herd has to end up and making the key decisions about route, stops, managing risks and directing the response to issues as they arise. In estimating the resource they need, I doubt if they planned from the bottom up working out day-by-day what each cowboy would be doing. Instead he (or she) uses their experience to assess numbers and of course he never forgets the necessary support services, ie the chuck wagon, that will feed his men and additionally act as a contingent resource.

Each day the trail boss would send out the "cowboys" to move the herd forward, assessing and adjusting to the terrain and then deciding where and when to stop at night. He would probably also send  out a couple or outriders looking for better routes and potential trouble, thereby collecting information that is over his "horizon" and currently out of sight.

Some of the herd (read as "benefit" in project terms) maybe lost along the way, often there are competitors and other groups out to impede the progress of the herd and success can only be assessed once the herd has been delivered (and sold).

Are you sensing the parallels? There are many days in the office when I feel like a trail boss and think that acknowledging that can help solve many of the problems I am employed to solve. Maybe I do herd change as much as I project manage.

Please let me know what you think? Is there something in this? Can and should we build on it?

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As a close, if you fancy a smile, watch this Youtube recording of an EDS advert.

Warming From The Inside On A Cold Evening!

For some time I have been encouraging my network to consider small actions that can help those less fortunate than themselves. My suggestion initial suggestion was to use the money that they would otherwise use to buy a coffee on something different and more charitable. One option of course is to actually buy a cup of coffee and give it to someone who will appreciate it.

I recently blogged about a development of this where some coffee shops allow a customer to buy a cup of coffee "forward" ie leave a credit in place for the next person who needs a cup. I have contacted a few to see if we can't get something like that working in London.

Back to this blog though. Until yesterday I had no real idea if anyone had heard and acted on my suggestions. All I knew was what I had done (and have blogged about). I do not do it every day or even every week, but when I see a situation that I think worthy then rather than think of reason why not to, I act instead. I have not been disappointed so far.

So yesterday a contact in Linkedin mailed me and shared his recent experience. I have made a few small changes to avoid his blushes, but essentially this is his story.

I thought that you would be interested to hear my not very original, but Sutherland-inspired experience last Friday?

Having visited my favourite curry house, pre my monthly jazz dose, I realised that I was a little too light in the financial department. En route to the hole-in-the-wall I passed a guy sat out with a cup and a ruck-sack (but no dog!?) There was another guy in similar circumstances strategically placed about 10m from the cash dispenser.

The story of your experience went through my mind, the night was cold, I decided to go and purchase a couple of mugs of tea. I offered the tea & donated a couple a couple of quid to his empty cup - he was most grateful. I did the same with the other guy across the square, he too was similarly thankful.

I then went off to the jazz with a bit of a warm feeling inside, so thanks for passing on your experience - I'm sure it was appreciated and the cash not squandered on anything less savoury!

Not only did this "warm" the recipients and the donor, the story warmed me too. For my part I hope he will find himself doing it again sometime. It really feels like a win-win action.

That said I was sensitive to his last comment about how the money might be used and responded that to my mind at least the key was that he had given those two men an element of choice, which is something the rest of us can take for granted. They may make a poor decision on how they use it, but to me that is not a reason not to  try and give them a chance.

I would like to thank this friend not just for his act, but for sharing it too. I hope that in sharing it here it will inspire at least one other - and that is how we can start a chain reaction.

Experience - what is it?

As a young man fresh from university and starting my career in the City I was not short of confidence. I was ready to and believed I could take on pretty much anything. Truth be known I still do - but I am more selective about where I put my effort these days.

I was chomping for promotion, for bigger roles, more responsibility and, of course, the rewards that go with all that. When I did not secure a role I wanted I was frustrated. Often the response was that I did not (yet) have the experience required. This felt like Catch 22 - how could you get the experience if one did not have the chance to accumulate it.

Now I cannot complain. Overall I have had a long, varied, interesting and pretty rewarding career, so I guess I can't be doing it all wrong. I think at almost 54 if I don't have experience now then I probably never will.

I don't recall what triggered it, but  the other day I found myself reflecting on experience and indeed what experience is. I came up with four aspects that I thought I would capture. My headings are:

• Knowing yourself
• Knowledge that puts your environment into perspective
• A good stock of stories
• Fearless fear

When I first wrote this list down I was surprised to see nothing about technical or detailed understanding of the business I find myself in. I have thought about this and am still happy with my list. The detailed stuff falls into domain expertise rather than the more general experience I considering here. A skilled student can become a techincal expert, but that does not mean they are experienced.

So what do the items on my list mean?

Knowing yourself - This is about knowing who you truly are, what drives you, what satisfies you, where your work/life balance is and what your emtional and psychological aspirations are. I think that many follow the herd, tend to conform to the norm in these things, especially when younger. If that fits then that is fine, but if it is not then success can be elusive. Using a sporting anology, if I took a promising and talented young footballer and pushed him into a rugby team, he may well survive and perform adequately, but it is unlikley that he will achieve as much as he would in football. Of course nothing is certain and there are excpetions, but knowing who you are is key.

This takes some people longer than others and some may never find out who they are. The oft reported comment from deathbeds of "I wish I had worked less?" is, I think, supporting evidence for this point.

Knowledge that puts your environment into perspective - This comes from having seen and lived a life. It is the ability to better judge ones actions and reactions when the world throws things at you. It is not about ceasing to care but rather placing events and implications in a realistic order and understanding their true scale. In my career I have seen at least three financial slumps, partaken in certain excesses, been made redundant and had to make others redundant. I have also been part of a 27 year marriage, have a beautiful daughter and met many good people, many of which I would consider friends now.

This means that when the next curve ball comes my way I can assess it better, respond appropriately and most likely navigate through it.

I guess the more you live the better your perspective (good or bad) - the question is how much do you need?

A good stock of stories - As a change agent stories are powerful tools and the longer I live, the more I do the greater the number of stories I have to hand. These are powerful not just to catalyse change, but to build rapport with others.

I am a little unusual in that I have no interest and little knowledge about football and I don't and have never smoked. These have been and still are (though smoking less so these days) subjects that glue many people together, both personally and professionally. As such I was aware that I missed out on a lot of informal information and opportunities.

With 30+ years of stories I now have something for most ocassions and situations. Interestingly my excursion into stand up comedy has been a huge boon when meeting people and lifted the perception some had of me. This sort of links to the last item.

Fearless fear - This sounds like a contradiction and to a degree is. What mean though is that with perspective above I think that expereince allows one to dial down the levels of personaly fear in many situations, fear that paralyses and constrains you. It does not mean that you do not know fear, but rather you only fear the right things.

As a couple of examples, as a young man the idea of a girl saying "No" if I asked her for a dance was horrifying - it felt as if my world would collapse and the shame would be unbearable - so much so that I rarely managed to ask. With the benefit of 40 years I would feel no fear in such a situation. More recently a young girl I was mentoring was looking for advice from older role models (not me before you ask!), but was afraid to approach any of these public names. Instead I was happy and able to reach out to the ladies in question (who I did not know) and secured meetings for her. She was paralysed by fear, while I felt none.

Fear has its place and to have no fear makes one dangerous, the key is to have it dialled down to the right level for the situation - that is part of experience.

The perfect storm ... or for some the perfect nightmare.

 

In Wikipedia the term "a perfect storm" is decribed as "an expression that describes an event where a rare combination of circumstances will aggravate a situation drastically." In the many years I have been working in change I am not sure I have seen a "perfect storm" shape up as well as the one we face now.

We have:

• a deadline whose definition is defined in European Law and will not be moved,
• a change that impacts pretty much the every bank and investment manager,
• has regulatory requirements that have not been fully defined yet and are not expected to be published until maybe two weeks or so before the due date (and could be later),
• rely in industry-wide agreement on the creation and communication of key data elements that have not be resolved with less than a month to go, and
• has critical supporting infrastructure that we are told may only be released on the eve of the due date.

When pushed the response from key parties is (almost literally) "suck it and see". By that they mean  give it a go, submit trial files to the receiving computer and see how the computer responds. This is not the measured and controlled way we look to deliver change in financial services, but is the only one open to us.

The situation is widely recognised by those involved and those responsible. The regulators have said they expect everyone to start on the due date on a "best endeavours" basis, but no-one knows what will qualify as acceptable "best endeavours". This is not the regulatory world many senior managers are used to, so you can understand their unease and unwillingness to be open about where they are.

The grapevine suggests that many big names will not be ready - indeed how could they - but like a giant game of chicken no one is blinking yet and the regulators are sending all the signals that they will not move.

What am I talking about? Well, if you haven't guessed yet it is EMIR Trade Reporting.

The next few months could be a bumpy ride with many firms (operations, compliance and change) needing to be truly agile as they take what they can and deliver what is possible, probably in iterative steps. The 12 February 2014 is far from the end of this work. Instead, I suspect it is just the beginning of something we have not seen before.

The Chinese have curse that goes, "May you live in interesting times." We are certainly living in interesting times so I wonder what we did wrong?

To short story or not to short story - Why Not?

 

I friend in Australia Facebooked (is that a verb now?) information about a global short story competition run by NYC Midnight Movie Making Madness. I thought I had my personal challenge for 2014 and that is cartooning, but I find myself tempted to add this new opportunity.

In essence it seems that for a modest fee one enters a global competition of (if you are succesful) three rounds. In each the organisers set you in groups with an assignment of genre, subject and character assignment with a time and word limit. Those that are judged best move on to the next round, with the time and word limits reducing each round.

Now I have to say that it is pretty much 40 years since I faced this sort of thing, while sitting O-level English. I did not find it easy then, but I guess I now have so much more experience to call upon that it should be easier. Of course there will certainly be many would-be authors and may a few already successful ones, so a pure amateur like me should stand no chance. Despite this I am still interested to have a go and see if I can at least get through to Round 2.

I have spent the last few days internalising the "should I, shouldn't I?" argument. I have concluded that apart from the modest entry fee and the time it will take me to write (limited by the competition) there is no reason no to have a go, so this week I will apply and see what happens. The first round is is February 7 -15 so not far away.

This may put my cartooning back a few weeks, but that is not critical right now.

I plan to publish my entry in the blog on or just after the closing time for each round in which I compete, partly to protect my work, but mainly to keep me honest and focussed.

If you too fancy the challenge then I am happy to face the additional competition. The link above will tell you all you need to know.

Lest we forget!

No this is not a list of people who have died, but more a personal entry in order not to lose sight of what happened to me and what I achieved in 2013.

While in truth the world did not change at midnight on 31st December 2013, we all seem to indulge in a lemming like rush into a "new" year and leave the previous year behind. I do know and recognise that for many of my friends 2013 was not a great year - I have had years like that before - but it seems to be the human condition to focus on the negatives and forget the positives. So I have decided to capture here, on my blog,  a summary of some of the key events and achievements that impacted me in 2013. They are not all monumental, but I would like to look back on them in future.

I am not going to try and give these a priority or scale, though I will try and group them roughly.

Here goes -

• This was the first year for a few years that I was able to generate income for the full year. Apart from public and chosen holidays I invoiced for every day last year. That certainly aided the family coffers, made life easier and has built a buffer against future uncertainties
• Having skipped a holiday in 2012, we had a family holiday to Santorini and a cold and snowy weekend in New York with Ellen, my daughter. With her being 18 now, there may not be many of these family vacations left!
• Having seen Meatloaf at the O2 I became embroiled in some bizarre email exchanges with both Meat Load himself and the Outlaw Motor Cycle Club!!!
• I also saw Jethro Tull in concert with Mark Almond as guest vocalist - who would have guessed that one.
• Ellen left school with good A-Levels and having chosen not to go to University won a place on a National Youth Theatre summer course and has subsequently had a small but significant number of extra and supporting roles. Not exactly a career yet, but a good start.
• I made a 10 minute montage video for Ellen's birthday, comprising old photos and video clips. It took a long while, but I was pleased with the result. I think Ellen was too.
• At home I got round to getting the roof and garage door fixed. Two long outstanding jobs that I had just not tackled.
• We decorated my (home) office and the spare bedroom and arranged to have our hall, stairs and landings redecorated. The latter was too big a job for me taking a professional two and half weeks and using almost 30 rolls of paper!
• We also (fortunately in retrospect) got permission and had our large trees cut back in September. Not only did I then avoid the annual drudge of leaf collection, but we have had no risk during the storms that have passed over in the last couple of months.
• I lectured at Henley Management College (organisational design and role profiles) to the HR team of a major Chinese aviation company. I also spoke at a Derivatives conference and am booked for a second.
• I performed a stand up routine in Camden!! This seems to be most people's nightmare scenario, but it went OK. It is on YouTube and I still hear some laughs as I go through my material.
• I learnt more about gin and Neurolinguistic Programming (NLP). The former has certainly improved my enjoyment of the variety of gins and tonics, while the latter was an entertaining weekend that did not convert me.
• I supported Movember by growing a goatee that has attracted nice comments (including from my wife) and it will now stay at least until next summer.
• I have not played as much golf as I might like, but have enjoyed what I did.
• I have been connected with some new and interesting people through MAGnet and the KNOWlist.
• My Linkedin network finished the year just shy of 15 million - up 25% on the year!!!

All in all 2013 has not been a bad year for me and I am sure there is a load more stuff that should be added above (I may do so as and when I remember it!). I am a strong believer in head up and looking forward rather than dwelling in the past - good or bad - but I think it does pay to keep some records and keep a proper perspective.

I have some plans and plenty of hopes for 2014. I do not know how it will all fall out, but I intend to enjoy the ride and support my family and friends in theirs.

The RAF motto says "Per ardua as astra" or "Through adversity to the stars". While I like that I still like the one I commissioned for Kellian which is "Mutatione Vigemus" or "In change we thrive". Take your pick, I think either will guide us through the next 12 months.