This podcast is part of the series “Market Conduct & PAD: How To Keep Up Controls In A Time Of Remote Working” which is sponsored by FIS.
In this DerivSource podcast series with FIS, we will be exploring the challenges when it comes to maintaining controls for market conduct and personal account trading when the majority of market professionals are working remotely and away from the office and their teams during the COVID-19 pandemic.
Julia Schieffer:
Tell me first, what a typical work day was for you pre the pandemic?
Manmeet Rana:
Oh, it seems so long ago now that I’m not sure I can remember. There’s no such thing as a typical day, because the life of a consultant means you might be in the office, you might have two or three client meetings that you have to go to. Some of these client meetings would have been very close to our office and others would have been quite far. So there’s been a massive difference with lockdown.
Julia Schieffer:
And what about now?
Manmeet Rana:
My routine is not bad. So, so I generally wake up around six o’clock. I’ll make myself a coffee. I’ll do some things before work. In some ways, it’s actually very nice to have some time where, you know, I can read, I can catch up on news because obviously I don’t have the commuting time – so I manage to actually get quite a few things done before eight o’clock in the morning, which is when I usually log in and then start work.
Julia Schieffer:
Hello and welcome to this DerivSource podcast. I’m Julia, Schieffer the founder and editor of derivsource.com. I’m going to introduce you to our interviewee in a minute, but before then, you’re listening to the first of a three-part series on market conduct, personal account trading, how to keep up controls and compliance in a time of remote working. In this series, we will be exploring the challenges when it comes to maintaining controls for market conduct and personal account trading. Really when the majority of market professionals are working remotely and away from the office and their teams during this unfortunate pandemic. And in coming podcasts, we will explore how firms can continue to comply with market practices and regulations such as the market abuse directive, as well as the value of harnessing technology at this time to meet the new needs and address the new challenges that remote working is creating for firms and for professionals. In this first podcast of the series, I’m speaking to Manmeet Rana, partner at global consultancy Aurexia. And I’m speaking to her about the importance of culture for firms as they reassess their risk profiles, their controls, especially when it comes to market conduct and trade surveillance among other activities.
Julia Schieffer:
Manmeet, welcome to the podcast.
Manmeet Rana:
Thank you for having me.
Julia Schieffer:
So we’ve already heard about your usual workday pre pandemic, and now, Manmeet, can you tell us a little bit about yourself?
Manmeet Rana:
Yeah, of course. So I joined here a year ago to lead the UK practice and to really grow out the business in the UK. Um, prior to that I’d spent about 14 years across, across big four firms. My career has always been focused in regulatory consulting and regulatory change and remediation. So, you know, I did a lot of MiFID and market abuse implementation the first time round, and then the second time round as well, and largely across investment banks and the asset management and wealth sectors.
Julia Schieffer:
Before we dive into the here and now, let’s take a step back. And your view, how have things already changed when it comes to market contact for firms since the early days of lockdown in the UK, that was late March. What’s the difference now?
Manmeet Rana:
I think now is really important for a number of reasons. Firstly, what we thought was a temporary situation is suddenly turning into the new normal. And so, initially when lockdown down happened, we didn’t know how long it was going to be and how long we’d all be working from home. And that’s kind of spread out from weeks to months with some firms, even a bank this week, suggesting that a lot of their staff won’t actually be back in the office until next year. So whilst I know that firms in the City are making a concerted effort to get some people back, it won’t be back to business as usual, I think, for quite some time and possibly not until the end of the year. And so a situation that was temporary at the beginning, where firms were looking at their controls and their procedures thinking it’s a temporary situation actually has suddenly turned permanent at least for the foreseeable future. And therefore, it’s really important to make sure that the controls you have in place are robust.
I think there are additional challenges for firms as some people in firms go back to work. So how do you ensure you have a robust set of controls that work across people working in the office as well as parts of teams working from home and working like that long term, which I think is significant.
The other thing for me is also the emotional toll this has taken on employees. Initially, the shock set in and in shock mode, I think people react actually quite positively and get on with that. And it’s only over a period of time you realize kind of what’s happened. And I think that, you know, that the shock phase is receding and actually reality is biting where people are actually starting to think about what this means – what does the actual long-term economic impact look like? And all of that can, firstly, it can create pressure on employees. And we all know that when people are under pressure, they don’t always make the best decisions, which can lead to greater conduct risk in the medium term. I think secondly, when people first went into lockdown, they started working from home, but they still had that culture of the organisation embedded in them. The challenge that people have now is that they’ll have new hires and they’ll have people leaving. I mean the recruitment industry, it may not be going at the same speed as it was pre lock down, but, but it’s still moving. How do you actually make sure that new employees are adopting your culture and they understand what your culture is but also over time, I mean the way that people behave when they’re near their office building and in their office, versus how people behave in their own time, in their own homes, in the company of their own friends and family, it can sometimes be different. So actually, how do you carry and translate your organisation’s culture long term into people’s homes? I think that’s really difficult.
Julia Schieffer:
You’ve mentioned culture focusing on that. Why is this so important and what definition would you use to define culture?
Manmeet Rana:
Culture is a broad term and cultural organisations varies, I guess, you know, when I’m looking at it, I’m looking at it very specifically from the context of conduct risk and making sure that the culture of an organisation encourages and promotes good conduct outcomes. And that has been a key area of focus for the FCA actually since the last financial crisis and the aftermath of that. And a lot of firms have invested very heavily in making sure that actually their senior management are not just aware of what conduct risk is and how it impacts their business, but are making sure that their reports and their reports and their reports are always looking for good conduct outcomes or at least not conduct outcomes which are going to disadvantage their clients or have a material impact on the market.
And we can go into lots of definitions, but to sum it up, it’s about doing the right thing, right? This is about making sure that every single individual in your organisation is doing the right thing. That means taking the right decisions. That means doing business in the right way so that you are not disadvantaging clients or taking advantage of a client’s vulnerability, for instance, and you’re not impacting the market and you’re not exposing the firm to, to regulatory breaches basically. And I think telling people what doing the right thing is, and then making sure people actually do the right thing are two different things, right? LIBOR is a good example, you know, what the right thing is, but actually everyone’s doing something different. And so why would you go against market convention for instance, were some of the arguments that came up. And so this really is about making sure that people feel empowered enough to be able to say, no, I’m a junior trader, but I’m not going to do this trade in this way because actually this would be the wrong thing to do. For instance, you know, someone comes across inside information, making sure that that person says, no, I’m not going to act on it. So this is where it can have a very significant impact in terms of market conduct, um, and actually client conduct as well.
Julia Schieffer:
On the regulatory compliance front, how are the controls in place now evolving in light of the pandemic?
Manmeet Rana:
As the pandemic has progressed, the types of controls that firms need to start looking at actually has evolved. And it’s not kind of the hard controls in terms of recording phone lines, but again, and I’ll repeat it again, it comes back to culture and firms need to start looking, I think at how they ensure that the culture and the values of their organisation do translate into people’s homes and that’s where it becomes difficult.
So if we look at it from a comms perspective first, right, and different people have got different views on the communication of culture, but lots of firms did invest very heavily on making sure the values on the behaviours expected were very widely published. So some banks had kind of banners I’ve even seen stickers and toilets for instance, saying what the culture and the values and the behaviours should be within a particular organisation. When people are working from home, all of that goes, so the culture that you had actually over time, there is a risk that people will start to forget. As I said before, you get new joiners into the organisation.
And so really for me, I think firms need to be focusing on how they actually continue to embed their culture across the organisation to ensure good behaviour, because I’m not convinced the kind of the big brother surveillance controls, so putting video cameras in people’s home offices or bedrooms or wherever else they work from is actually going to be very helpful or even conducive to people’s mental wellbeing, to be honest.
Julia Schieffer:
And from a regulatory compliance and controls perspective, what do you think is really the biggest challenge that firms face right now?
Manmeet Rana:
If you’re looking at this from a compliance and a regulatory perspective, of course, it’s around culture and control because you know what firms I think don’t want to do is kind of create almost big brother in people’s homes because again, there’s an emotional impact of that as well, but trying to retain and build permanent robust controls that cater for the new normal and that work in the new normal, I think is really, really difficult.
Let’s take one example in the last more than a decade, really, it has been normal for compliance teams, for example, in any advisory functions in banks to actually be co located with front office, right. So that they are easily accessible so that they can do surveillance by just being there and by seeing and hearing what’s going on around them. And that is so important.
And you know, there’s also the deterrent as well, which is if a sales person or trader knows that compliance are kind of just sat two banks away, that presence is always there. And one of the challenges that certainly compliance advisory have had is if you’ve been working from home, how would you actually do that? And, you know, actually in terms of back to office, I do know of some compliance advisory people who are back in the office now because front office or going back to the office.
But in some ways the control functions have to rethink how they perform some of their previous activities. So for example, you know, it’s, not uncommon for trading desks to kind of create, I guess, ‘teams, teams’, if you like, and, you know, have all day long video calls and chats that you can log into, for example, as a compliance advisory person. But that will mean that compliance need to really look at the way that they engage with the business. If they’re continuing to work from home or the business, or continuing to work from home.
Julia Schieffer:
Looking at today, what are your clients doing now in terms of making changes to their practices, procedures and controls in light of all these challenges that you’ve already highlighted a little bit.
Manmeet Rana:
A lot of our clients have worked very hard in terms of looking at their risk profile. So looking at their conduct risk assessments over the last few months in particularly around our market conduct, but also client conduct, to see how the COVID-19 pandemic has impacted that overall risk that they’re exposed to and whether their controls or their current control framework is sufficient to deal with mitigate those risks or whether there are additional controls they’ve had to put in place.
And I think the reality is different firms will take different approaches. So for example, some firms are saying actually, if the head of the trading desk is running, you know, a virtual call all day with the rest of the team, then that person is in the right place to do some of the supervision. And in some instances, but also, they are looking at what additional monitoring they should be looking at. For example, particularly in terms of how some of that electronic surveillance is performed.
Julia Schieffer:
Is there any silver lining to what firms are going through right now in terms of the opportunities to maybe improve practices either now or in the longer run?
Manmeet Rana:
In some ways, yes. I think market conduct, I’m not so sure. I think from a, from a compliance perspective, hopefully this will encourage firms to relook at their controlled environments that they’ve already got and see if they’re fit for purpose, because at the end of the day, they’re always a hundred controls you can implement and if you’re looking at it from a compliance perspective, you’ve generally got money for five, right? So there’s always kind of that gap between what you want to do versus what you can do. I think that really controlled environment in this kind of situation firms can start to look at actually, how do they automate more, a lot of what they actually do. So I think there is an opportunity to increase compliance efficiency.
And the other thing though, is in some ways, compliance functions could use this as an opportunity to reinforce first-line controls or at least encourage risk owners to reinforce first-line controls. And what I mean by that is if you’re in a bank and compliance advisory is located on the trading floor, you can see them there, there are at all of your committee meetings, et cetera. It can be very easy to dump things on the compliance person when it comes to actually achieving compliance, right? Some of that might be questions and it’s really important. And, you know, I know lots of compliance professionals who really welcome that relationship because it means that the business actually go to them and they catch things really early, which is great. But at the same time, sometimes it can leave compliance functions doing first line controls, right? So things that the business could figure out for themselves.
So typical example, I mean, PA dealing is great, right? The PA dealing policy, the amount of angst it can cause is tremendous. Firstly, many compliance professionals will say that they are just asked different questions on personal transactions (what individuals can do or what they can’t do) when this information is written in a policy that these people haven’t read themselves because actually it’s easier just to walk over to your compliance advisory person and say, ‘Oh, can I, can I do this trade?’
And so I do think that in some cases, creating this distance and it’s kind of looking for a silver lining in a very, very, very dark grey cloud, but in some ways, it’s created that distance, which from certain aspects could have a positive impact because it means the first line take more ownership and actually go and read that policy. But in some ways, obviously, as I’ve said earlier, it can lead to a greater risk as well to the firms. So, you know, swings and roundabouts, really, to be honest.
Julia Schieffer:
Just to wrap this up for our audience, is there any advice that you would give our listeners in terms of what they should be doing now or considering going?
Manmeet Rana:
So I think most banks have had and made a lot of investment over the last in particular five or six years around conduct risk culture. And I would say that the organisations need to go back to revisit conduct risk culture, look at all the work they did in terms of embedding that culture in an environment where people were co-located and working together, et cetera, and actually see how you now translate that in an environment where people might be working either from home or you might have teams, you know, partially located in the office and partially located at home. I think now is a good time to revisit all the work that banks have actually done on that and see how they translate this now to deal with the current situation.
Julia Schieffer:
Manmeet, thank you for sharing your insight with us today.
So many people lack the physicality of a normal working day right now that could be getting lunch out, getting a coffee out, talking to your colleagues in person. But as we’ve discussed here, there’s more to it than that. The physical element of working close to your peers and to your team, really serves the purpose of reinforcing controls and affirms culture, which is really essential to market conduct. And without this proximity and normal working arrangements in an office, firms really need to ensure that they are instilling their culture in the remote working teams. And hopefully today, you’ve learned a little bit more about why this is important.
So I’m curious how you think that your firm currently ensures that your following the culture at home, please share your views with us by emailing us@editor@derivsource.com. And we also are going to share with you some additional resources via our show notes page on derivsource.com and stay tuned for the next instalment of the series, which we’ll take a closer look at how to continue to comply with regulation from home. Thank you for listening. Join us next time.
