Monday, July 14, 2014

Understanding financial criminals - Why 'Shredded' must become compulsory reading!

Ian Fraser's new book 'Shredded - Inside RBS - The bank that broke Britain' should become required reading for every civil servant at H.M.Treasury, for every apparatchik in the FCA, and for every politician whose brief engages with the City.

Ian lashes out with fists crammed with facts, and his book leaves a wide variety of players badly bruised and with reputations seriously diminished!

When I was a detective at the Fraud Squad at New Scotland Yard, I had many opportunities to investigate and evaluate the attitudes and business morality of City bankers and other financial practitioners.

Between the years 1979 to 1986 I investigated the affairs of dishonest men (almost exclusively) who believed that their positions in the City hierarchy made them immune from the ordinary implications of the criminal law.

I also had a lot of dealings with civil servants, mainly from the Department of Trade and Industry, and I was constantly appalled by the lack of practical knowledge of the ways of criminals that they brought to their role as regulators of the financial sector. 

I was shocked by their arrogance, their insouciance, and the way that they believed that they were an all-knowing source and fount of expertise, when in so many cases, they were totally incompetent.

I rapidly came to the conclusion that one of the reasons that so much crime flourished in the financial sector was because the practitioners themselves believed that they were above the law and would not be prosecuted, while those who existed to regulate their activities, were largely useless and shockingly incompetent, but who knew that if they waited long enough, and didn't rock the boat, a job would be found for them in the financial community in the longer term.

Too many people in the DTI regulatory divisions had become subject to a phenomenon called 'Regulator Capture', in which a cosy relationship was allowed to develop between regulator and institution, and an unspoken agreement existed whereby both sides knew that in return for studied non-intervention, employment rewards awaited the compliant regulator!

Anyone who has worked in the financial sphere for any time has known these features. Anyone who has worked in the regulatory environment has seen the corrupt and corrosive atmosphere they inculcate, and the wrong-doing that is allowed to proliferate.

I have worked in this sphere for many years and I have seen all these phenomena and more, and, as each new bank scandal, criminal act, scam and rip-off went by unmolested, I had begun to despair that there would ever be a proper denouncing of the whole rotten edifice.

Well, now, at last, there is Ian Fraser's excoriating book, 'Shredded', and what amazing reading it is. He unpicks with forensic care the entire diseased carcass of what was the Royal Bank of Scotland, and he lays bare not only the bones of a once-great institution, but he exposes the sociopathic behaviour of a CEO, Fred Goodwin, or 'Fred The Shred', who presided over the denouement of this important bank.

In the telling of the story, a Greek Tragedy emerges as the arrogance and hubris of Goodwin are dissected and his ultimate downfall is foreseen!

But what makes this book so compelling is how Fraser manages to demonstrate the way in which the stage upon which Goodwin would tread his doomed existence, was prepared for him by earlier failures to regulate the banking sector. I intend to quote from selected paragraphs to illustrate this vitally important issue!

Talking about the regime of regulation, Fraser points out how New Labour re-designed the Margaret Thatcher model of financial regulation.

"...Brown and his advisors including Balls and Steve Robson (senior civil servant in H.M.Treasury who would later go on to a job with a major bank), decided Thatcher's patchwork quilt of regulators would have to go...It had turned out to be...incapable of preventing scams, financial disasters and swindles..."

"...But as New Labour's Financial Services and Markets Bill wended its way through Parliament, concerted lobbying by banks...ensured that the new regulator had its wings clipped before it had even hatched..."

Among its most deviant legacies was the requirement  that the new regulator, the FSA "...must consider the international mobility of the financial business before taking any enforcement action, and avoid damaging the UK's competitiveness..."

There, in black and white was the mantra which exonerated a new generation of incompetent regulators, who could always pray in aid this stipulation as a justification for doing nothing when the fight got hot and dirty!

Nick Cochan, a fine journalist pointed out that this phrase put bankers above the law, where they have remained until this day!

Another major problem was Gordon Brown, who was described by Steve Robson as 'having no interest in financial regulation'. Because Brown ignored it, the best and brightest Treasury civil servants ignored it!

This is always the problem with civil servants, they will look to see which issues their political masters espouse and then commit themselves. The stage was being set under Brown and Ed Balls for a regulatory-free zone in financial services, in a market run by a group of financial great white sharks.
Blair was no better, he was not interested in financial regulation either. 

",,,In March 2003, the Blair Government indicated what sort of regulator it wanted when it announced that former Barclays investment banker, Sir Callum McCarthy was taking over as FSA chairman...On his watch the FSA succumbed to regulatory capture, not least with the appointment of James Crosby of HBOS as a non-executive director..."

This period was characterised by the emergence of 'light-touch regulation', a phrase which became synonymous with 'no regulation at all'.  "...Blair, Brown and regulators like McCarthy had created an environment in which financial firms...were pretty much above the law..."

As an epitaph for the state of financial regulation at this time, the following paragraph sums up the state of play in London at the start of the Great Financial Crisis.

"...In a memo one former FSA senior executive revealed that between 2003 and 2008, mid-ranking FSA staff were, for the miost part, incompetent, poorly qualified and of too low a calibre to have any chance of reguating the financial services sector. Others were too lazy and complacent to bother checking up on what financial firms were doing. He added that none had the influence or the inclination to challenge the pervading 'light touch, laissez-faire regulation'... FSA supervision was hollowed out and its depleted ranks were staffed with mediocre people who cared little about the business of supervising firms..."

For years, people like myself and Ian Fraser, Nick Cochan and others, have been identifying these shortfalls and incompetencies. We have written about them, we have spoken on public platforms, and all the while, we have been routinely ignored. My evidence on this topic which I sent to the Parliamentary Commission on Banking Culture and Standards was conveniently 'lost' by the Government servants, who initially denied having received it, and then later, when admitting they had had it all the time, said it had to be redacted (censored) because it contained evidence the banks wouldn't like.
(Actually I rather thought that was the whole point!)

Ian Fraser's brilliant book deserves to be read by anyone who has any interest in understanding why and how our financial services sector has been allowed to become an organised criminal enterprise, run by a mob of mafia goombahs!

It is an important piece of work because it throws down a heavy gauntlet to the financial establishment and challenges them to pick it up and answer the charges it contains. Ian has done what very few writers succeed in doing, he has confronted the otherwise 'protected species' and laid bare their inadequacies. They must respond or stand accused of craven complicity in assisting in a world turned upside down!


Cedric said...

Hi Boz. You're so right on the attitude of the regulator. In my SOCA days we strongly suspected that EDD on PEPs wasn't being taken seriously by many institutions and the FSA wasn't taking our concerns seriously. It wasn't until 2011 that they conducted a review of high risk ML situations and found that some big banks were not conducting satisfactory EDD (in some cases zero EDD) which was followed by mediocre fines.

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