Earlier this week  I corresponded with a veteran of the City (i.e. someone who has survived the downturn) who described himself and his colleagues as gladiators - entering battle every day, enduring existence in a high risk environment – and feeling more bloodied than pre-2008. 

As glamorized as gladiators are, in Hollywood myth, in reality they were drawn from a wide pool – from criminals, slaves and for those who were poor or non-citizens, the role offered the “chance for a trade, regular food, housing of sorts and a fighting chance of fame and fortune”.   The consequences of the trade were not too pretty.

As the latest classic business case in risk management emerges - rogue trading at UBS to a tune of US$2BN - Kweku Adoboli certainly has achieved fame, if not infamy.  There already is plenty in the press about his sort of house (a warehouse in Shoreditch), his privileged background and his credentials as a model tenant and an overall “nice, relaxed guy” - highly educated, global, a lover of high culture, an ex-head boy.

This  lends itself to an image of an urbane man of integrity rather than a gladiator pitting himself for survival.   Indeed it now appears it was Mr Adoboli who “fessed” up to management on Wednesday and was still at his desk in the early hours of Thursday morning (no doubt chasing the miracle he sought to reverse his position) when he was arrested.   As the case unfolds I am sure we will learn more about the frailties of human behavior, stress, expectation and a lack of ethics – often created by the specifics of a working culture. 

So was the UBS empire and it’s rulers to blame?  Ethical culture is an area CIMA plans to explore more of in 2012 and we will be surveying our members in October.  Forget the rules – it’s the behaviours which are paramount, as CIMA’s reports on Ethics into Strategy, and independence in business partnering  have highlighted. In turn, with the rise of fraud globally, CIMA has just re-issued its guide to risk management.

Only a few weeks ago I revisited the Barings story here on my blog and emphasized the government investigation way back in 1995. Even then the findings were met with mirth – summarised quite simply as “management teams have a duty to understand fully the businesses they manage”.    Hmmm. With management in banking being rewarded so extraordinarily highly one would like to expect this should come with the territory.  Yet sadly not.  No doubt at UBS some senior heads will roll; Adoboli’s manager has already resigned.  I wouldn’t be surprised if there was a purse attached, as it appears bankers always seem to be rewarded for remiss.  And the more senior and powerful the banker the larger the purse - why not a penalty?

So risk management, however implemented, based on whatever high-tech systems and advice of expensive consultants, was not working.  All banks will be drawing breath and figuring where they stand.  As the recent report Roads to Ruin shows, the time bomb of poor risk implementation should be keeping senior management teams awake at night.  As FT commentator John Gapper asks “is it fair to ask if Kweku Adoboli is a rogue trader or is his employer a rogue bank”.  I doubt UBS is a one off.  With the complexity of instruments and unknown unknowns multiplying,  something quite radical is needed – a return to the basics of common sense.  As prominent economist Stiglitz’s essay of 2008 on the financial crisis shows us, the powers that be seem deaf to learning.

With the current banking reforms so high on the agenda with the release of the Vickers report, Andrew Tyrie Chair of the Treasury Select Committee commented only this Wednesday that he’d “had enough of banker bashing” and that we now “need and want to have a strong financial sector”. Meanwhile, a couple miles from Westminster in the City, Adoboli would have been preparing for a fateful meeting with his management, about the very weaknesses of the sector.

We urgently need and want a strong financial sector.  At present it is not clear how it will be achieved.  And with an ongoing gladiator mindset – it may not be realized.