LONDON (Reuters) - In the boom years, conspicuous consumption in the bars was investment bankers’ natural release from long hours in the office. Now the office sits on their shoulders while they sup.
After a series of banking scandals, banks’ compliance teams are ramping up their checks on every aspect of office life, such that even social outings are under scrutiny, with training sessions on what you can and can’t say over a beer with colleagues.
“Everyone is more paranoid, that’s for sure,” said one department head at a European investment bank, where the trading floor is festooned with posters reminding staff to report any suspicious behavior.
At his bank and at least one other European firm, executives said they were being asked to take part in an increasing number of behavioral coaching sessions, including simulations of pub outings.
These were mainly done via webcasts, where participants act out conversations with colleagues where the talk turns to clients or office gossip, two bankers said.
“You have to turn around and say, ‘No, let’s not talk about that’,” said one.
Such simulations and extensive compliance checks, including regular sweeps of emails and phone calls, are part of the new reality since the 2008 financial crisis, as watchdogs like Britain’s Financial Services Authority replace their now pilloried light-touch supervision with a more active and intrusive stance.
Successful convictions of individuals for market abuse schemes in the UK have also put bankers on their guard, as have scandals such as the manipulation of the Libor interest rate, a benchmark rate on which trillions of dollars of financial products are based. Barclays PLC is already counting the cost of that scandal - $453 million in fines - and others are under investigation.
A haul of incriminating and embarrassing emails linked to the global Libor probe has put individual traders on the spot and made them acutely aware that their communications are being examined as never before.
“There are even some (market abuse) cases of information leaking in open trading rooms, where someone took notes on what was being said and traded on it,” said Stuart King, a former FSA and Bank of England official now advising on compliance issues at consultancy Promontory.
“That will lead to a different working culture.”
Two senior trading managers said staff were encouraged to make notes of their discussions in key meetings, for instance, or were being advised to limit with whom who they shared potentially sensitive information about clients.
Some worry the extra scrutiny will make it harder to do their jobs and will make much of the smallest slip-ups, while doing little to help uncover sophisticated market abuse schemes.
“You are increasingly worried about running things by investors in case you give someone an unfair advantage,” said one equities banker, referring to rights issues and share sales.
Investment banks are doing much of their own checks in-house. That includes housing special, multi-lingual teams to listen live to calls or to trawl through recordings of conversations, bankers in London said.
Software is sophisticated enough to search for specific keywords in recorded calls or emails - a company name around the time of a merger or acquisition to root out instances of insider trading, one banker said.
“The bank doesn’t want to sit there and be told (by regulators) there is a smoking gun; it wants to find it first and work out how to deal with it,” said James Worsnip of consultancy AlixPartners, which helps banks with the forensic examination of communications.
Regulators like the FSA, meanwhile, are making their presence felt on the floor much more, sometimes asking mid-level managers to step aside for impromptu chats in the course of their rounds, bankers said.
Division heads in particular are under more scrutiny than before. An FSA attempt to punish a UBS banker for compliance failings that occurred in his UK wealth management division was thrown out in April, but the case sent shivers through the senior ranks of the City of London.
It is closely studied by managers now required by the FSA to undergo more robust interviews when they take on top jobs, Promontory’s King said.
“It should protect you,” said the head of one debt team. “If you are doing everything by the book, it means you know you can show you have done nothing wrong.”
Additional reporting by Kylie MacLellan and Sophie Sassard; Editing by Will Waterman