Regulation has been on my mind this week: not the big-time Franks/Volcker regulation but the micro regulation that hits individuals. I thought of Alex’s piece a few weeks ago about Sudipto Chattopadhyay of Alpari (FX news: Nigerian sting for Alpari) and a conversation I had with an old mate of mine who’s an IFA.
At first glance I thought Mr. Chattopadhyay was caught bang to rights and the FSA (AKA, according to FT Alphaville, ‘The world’s toughest regulator’) quite right to slap him with a £14,000 fine and a three-year ban.
But then I got the empathy thing. Imagine it, there you are, MLRO of Alpari, 30-fold increase in client sign-ups, inbox overflowing, you know you aren’t doing the job right, you appeal to higher management but they don’t sanction enough help (FSA final notice to Chattopadhyay, p.3, “Alpari has admitted to placing too much responsibility on you and failing to provide you with adequate support in your role.”)
You have two choices – carry on as best you can or walk. Seems like a rock/hard-place situation to me. On the other hand it doesn’t take much to vet the client applications coming from those domiciled in places on the FSA’s dodgy list.
My old mate Bill has been doing the IFA thing since he got laid off from some big shop in the late 1980s. He hasn’t had a customer complaint in all that time and I haven’t got any problems with the way he’s handled my financial arrangements. Talking to Bill the other day I realised he was somewhat vexed: “Look Trev, I’m 70, the FSA have come up with this idea that I have to take these bloody exams. Now, if someone can guarantee me I’ll live till I’m 80, I might take a stab at them but the bottom line is – what do they think I’ve been bloody doing for the past 20 years?”
I see his point – it is box ticking in the place of common sense. My lady makes pretty much the same point to me about the NHS, where, apparently, all nurses will have to have degree-level qualifications. It doesn’t matter if you can actually do the job; they just want to see that bit of paper. But no amount of paper shows you won’t pass out when the really bad stuff happens.
And box ticking leads me back to the FSA. As a trader you’ve got to do the annual money-laundering test (among other pieces of box-ticking crap). I half remember a question at one of the places I worked:
What is the penalty for not reporting suspicions of money laundering?
a) six months
b) two years
c) five years
The answer is, of course: “It doesn’t matter – they are all prison sentences and not something I’d like to try.” The thing they should be testing (and I’ll be the first to admit that I don’t know how you do this efficiently) is: “If a money laundering situation hit you in the face would you recognise it?”
Another question I vaguely remember is:
If such-and-such happened, would this be defined as:
a) Placement?
b) Layering?
c) Integration?
Yet again, my answer is: “It doesn’t matter.” Applying labels to things doesn’t mean you will be any better at recognising the process.
What is my point? Well we do need regulation, and we do need compliance officers to support that environment, but the current methods of doing so are inadequate to the task. It’s as if there is only a desire to be seen to do the job – not to actually do it.