Earlier this week, the Financial Times reported that:
Lloyds Banking Group ๐ข๐น๐ฆ๐ด ๐ณ๐ช๐ด๐ฌ ๐ด๐ต๐ข๐ง๐ง ๐ข๐ง๐ต๐ฆ๐ณ ๐ฆ๐น๐ฆ๐ค๐ถ๐ต๐ช๐ท๐ฆ๐ด ๐ค๐ฐ๐ฎ๐ฑ๐ญ๐ข๐ช๐ฏ ๐ต๐ฉ๐ฆ๐บ ๐ข๐ณ๐ฆ ๐ข โ๐ฃ๐ญ๐ฐ๐ค๐ฌ๐ฆ๐ณโ.
๐๐ฆ๐ฏ๐ฅ๐ฆ๐ณ โ๐ฉ๐ข๐ท๐ช๐ฏ๐จ ๐ต๐ฐ ๐ด๐ข๐บ ๐จ๐ฐ๐ฐ๐ฅ๐ฃ๐บ๐ฆโ ๐ต๐ฐ ๐ฆ๐ฎ๐ฑ๐ญ๐ฐ๐บ๐ฆ๐ฆ๐ด ๐ข๐ด ๐ฑ๐ข๐ณ๐ต ๐ฐ๐ง ๐ฆ๐ง๐ง๐ฐ๐ณ๐ต ๐ต๐ฐ โ๐ฎ๐ฐ๐ท๐ฆ ๐ข๐ต ๐จ๐ณ๐ฆ๐ข๐ต๐ฆ๐ณ ๐ฑ๐ข๐ค๐ฆโ
This seems counterintuitive.
A bank that has previously been in trouble for poor risk management shouldn't see the risk function as a blocker, reduce its resourcing or otherwise clip its wings.
Now, it is entirely possible that the changes being proposed are designed to โ and willย โ enhance risk management. But I have my doubts.
Unfortunately, I'm not in a position to ask the firm to explain themselves.
But my former colleagues at the regulators are.
๐๐ป ๐ง๐ต๐ฒ ๐ฆ๐ฝ๐ผ๐๐น๐ถ๐ด๐ต๐
As a regulator, you can't โ nor should you โ second-guess or intervene in every decision firms make.
But given the way this has been presented, the regulators ๐ค๐ข๐ฏ and ๐ด๐ฉ๐ฐ๐ถ๐ญ๐ฅ ask probing questions, such as:
1. Staff within the risk function have been described as a '๐ฃ๐ญ๐ฐ๐ค๐ฌ๐ฆ๐ณ'. Please provide specific examples of what they have blocked that has led to this description, why you believe they should not have done so and what types of transactions or activities you are expecting them to approve in the future that they would not have done in the past. โจ
ย ย
2. What impact do you think that description will have on the people remaining within the function, how they are perceived by the organisation and, therefore, your overall risk culture? โจ
3. What concerns do you think we will have about this, and how have you personally satisfied yourself that you can monitor and address the risks this poses from a regulatory perspective?
Where I went next would depend on the answers I got. Particularly to question two.
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Image: courtesy of ChatGPT from an early draft of this blog. Not sure about the flower, but the 'Mastermind' style quiz setting seems apt.
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