The Evening Standard asked us for a comment last night on the Goldman Sachs letter. Sadly, I got spiked, but for posterity, here it is:
The latest Goldman revelations say as much about the lack of internal monitoring and compliance as it does about the toxic atmosphere in the bank.
It’s bad enough that bankers talked about their clients as “muppets”, but they even said it in internal mails. This means that any regulator, in fact any client who now decides to launch legal action against the bank, has prima facie evidence of wrongdoing. Put simply, the compliance team should have been monitoring all internal communications and identified what was going on. Any compliance officer worth their salt would have immediately been looking to see whether the bank was breaching its fiduciary duty to the people it was supposed to represent.
This type of insulting language reflects an insulated, arrogant culture at the bank, and the failure by the compliance function to detect and act upon something so blatant leaves real doubts about what else was missed, and whether other financial and regulatory matters were similarly overlooked.
Sheer volume of communication is no excuse for poor internal regulation. News International is finding that out to its cost. As the police wade further into the 300 million e-mails that they have been given, more arrests are made and more revelations emerge.
Modern computing power means that unstructured communications such as e-mails, Instant Messages, Bloomberg and voice calls can all be tracked, sifted, categorised and monitored automatically, with dubious or suspicious communications flagged to a compliance function for further investigation.
Surely it is better to know what is going wrong in your organisation before the knock comes on the door? Ignorance is never a defence, and in today’s highly-charged political and regulatory environment it would have been far better for Goldman’s to monitor and address what was going wrong as it happened, rather than watch a once highly respected organisation implode.