The Nov 1 issue of Operational Risk & Regulation has an excellent commentary by its editor, Alexander Campbell. As a new year starts soon, Mr. Campbell’s words deserve a wide hearing:
A Recipe for Success (http://www.risk.net/operational-risk-and-regulation/opinion/2119401/recipe-success)
As heads roll at UBS over the $2.3 billion rogue-trading losses the Swiss bank suffered in September, it’s reassuring to think that accountability is not yet a forgotten concept in finance. But if accountability is limited to firing people after a disaster, it’s really only achieving a fraction of what it could. While regulators such as the UK Financial Services Authority enforce ‘fit and proper person’ tests and have the legal power to bar delinquent executives from the industry, a look at other industries such as the shipping business shows just how much more detailed personnel policies can be. Tanker charterers such as the major oil producers won’t move on a deal unless they can see the full employment history of every officer on the ship, and demand minimum levels of type and job experience from the crew – both individually and as a team – before they’ll agree to entrust cargo to them. And their distrust of owner-funded classification societies – the shipping equivalent of credit rating agencies – has led them to club together to fund the provision of this information themselves through a member-owned database. Every time a vessel loads cargo, it’s overseen by coteries of inspectors from local authorities, charterers and shipowners.
Transparency and accountability on this scale create a virtuous circle. Because so much information about ships and crews is made available, customers demand it; because customers demand it, shipowners dare not fall behind in revealing it. There are other lessons on transparency to be learned from outside finance as well – the UK aviation industry’s widely praised Confidential Human Factors Incident Reporting Programme allows pilots to report safety incidents of all sizes anonymously, and could point the way for the finance industry towards common anonymous databases of fraud incidents, financial crime and other operational risk losses. This approach – driven by pressure, internal and external, to avoid the devastating failures to which the shipping and aviation industries are vulnerable – stands in contrast to the opacity of the financial sector, where the details of disasters, even after they happen, are hard to come by, and it is often only with subpoenas in hand that investigators – and then the rest of the industry – discover the full details of a collapse. Better, surely, to lift the lid before the pot boils over.