Legal Expert Says Culture Change Must Come From The Top
Regulatory and criminal investigations specialists at Irwin Mitchell have said that although there are many reasons why fraudulent activity occurs in the banking profession, a profit-driven culture can take the focus away from limiting risk taking and make it harder to hold senior officials to account.
The warning comes after the London trader who lost the Swiss bank UBS £1.4bn claimed that banking is ‘still riven by conflicts of interests’.
In a wide-ranging interview with the BBC, Kweku Adiboli apologised for his actions and said that ‘banking has not done enough to regain the public’s trust’ following the financial crash.
In 2012, the city trader was jailed for seven years after being found guilty of two counts of fraud after Southwark Crown Court heard that he was “a gamble or two away from destroying Switzerland’s largest bank”.
Since leaving prison last year, Kweku has been speaking for free at banking compliance conferences. When asked by the BBC if he felt behaviour had changed in banking he responded with a definitive ‘no’ before explaining that ‘the young people I've spoken to, former colleagues I have spoken to, are still struggling with the same issues, the same conflicts, the same pressures to achieve no matter what’.
Craig Weston, a regulatory and criminal investigatory group expert at Irwin Mitchell feels a number of proposed changes may help the industry but issues are likely to still occur.
“Complex fraud investigations by the Crown Prosecution Service or Serious Fraud Office against City professionals, traders and bankers highlight the problems the justice system has in evidentially holding some senior officials within financial institutions to account.
“Large financial institutions and banks can implement robust training and whistleblowing measures on issues of risk taking but a cultural change must come from the top down and policies and procedures can be overshadowed by the drive to generate profits.
“The new Senior Manager Regime being implemented by the Financial Conduct Authority is likely to go some way to addressing the responsibilities of very senior personnel in banks and financial institutions from a regulatory enforcement perspective. However, those making day-to-day managerial decisions who have the potential to influence less experienced staff or exert pressure on them may not fall within the scope of that regime.
“Another hurdle in holding a profit driven culture to account is the difficulty faced in prosecuting companies under the controlling mind test. The Government’s proposal’s to widen the concept of corporate liability for the criminal activities of its employees or agents, from bribery to financial crime is likely to spark internal system and control reviews by companies operating in all sectors not just the financial sector.
“Organisations will have to implement adequate procedures and policies to prevent employees from committing financial crimes or exposing their organisations to such risk behaviours and if they don’t the company could face corporate criminal liability. However, difficulties in prosecuting senior individuals who are in a position to exert influence on more junior members of staff to act inappropriately is likely to remain.
“With the very real prospect of a difficult financial climate in the aftermath of Brexit it is vital that the punishments for fraud and financial mismanagement are a real deterrent – and that regulators and prosecutors have the resources to undertake complex investigations. But there is concern that not enough has changed since 2012 to suggest this is currently the case.”
Craig Weston - Senior Associate - Barrister