HSBC has hired the man in charge of employee conduct risk at Deutsche Bank at a time when closer scrutiny is being paid to the behaviour of the UK bank's traders.
Toby Billington, who has spent the past three years as a managing director and head of wholesale conduct and risk culture for Deutsche Bank’s investment bank, has just joined HSBC as chief controls officer for its global banking business.
Billington is a specialist in conduct risk on the trading floor – how the behaviour of investment banks’ employees could expose them to potentially huge fines or regulatory trouble – and joins HSBC at a time when the bank’s traders have landed in hot water. Before joining Deutsche Bank, he was programme director of conduct risk at Barclays.
He joined Deutsche Bank shortly after this video about employee conduct at the bank went viral:
In the past few weeks, HSBC FX trader Mark Johnson was found guilty of defrauding a client in a $3.5bn currency deal, while the bank’s former head of currency trading, Stuart Scott, faces extradition to the U.S. to face fraud charges. Both cases date back to 2011, but employee conduct – particularly on the trading floor – remains a big priority for large investment banks.
HSBC is also recruiting for a chief controls officer in the Asia-Pacific to act as the “first line of defence” for its global markets business in the region.
In a report released in October, consultancy Quinlan & Associates estimated that employee misconduct has cost investment banks $850bn since the 2008 financial crisis, thanks to “widespread unethical behaviour” in the industry.
Large investment banks created the chief controls officer role around 10 years ago, and the position has become increasingly important. It deals with operational and conduct risk across the investment bank, and often involves creating guidelines for behaviour among the firm’s employees.
One former investment banking COO, who now runs a consultancy, tells us that investment banks are increasingly training their supervisory staff to look beyond PnL when assessing the behaviour of their markets employees. Investment banks are increasingly turning to technology solutions to look for potential collusion or bad behaviour on the trading floor. But employee misconduct goes beyond high profile cases of rogue trading or rate fixing and often involves tackling more mundane day to day concerns.
The consultant gives an example of a trader who was reprimanded for smoking in a non-smoking part of the office, and was abrasive to the person when called him up on it. His behaviour was overlooked, however, because the individual was a top performer.
“It’s amazing that you need a code of conduct for fully grown adults,” says the consultant. “But banking culture change still has a long way to go.”
Quinlan's report also said that banks still have yet to really fix their culture: “Cultures cannot be regulated into existence: a bank’s cultural identify must be created from within and reflect its individual DNA,” said the report. “And we believe it is here that many organisations still have much to do.”