NMP Live Meets Nick Leeson – Infamous rogue trader responsible for the collapse of Barings Bank in 1995. In our exclusive interview Nick discusses the difficulties of identifying rogue trader employees, the culture of passing the buck in banking, and how he keeps his finger on the pulse within the financial sector. Watch the full interview or read the transcript below.
In conversation with Nick Leeson
Why do you think incidents of rogue trading are as rife now as they were in 1995?
In 1995, after the collapse of the bank, it was called the wake up call that nobody will ever forget, but the history since that time is that there has been disaster after disaster, and it is because of complacency.
People, you know, when the markets, you have bear markets, bull markets, good times, bad times, and people forget what happened in the past and they get catapulted along with the markets, the speed, the complexity, the innovation that’s there and they are focusing on the next way to make money.
People don’t pay enough attention to what happened in the past, and they do get complacent, the controls aren’t as good as they should be. The regulators have a role to play, but they are never really going to be front line, making sure that the organization is safe, so it is up to the organization themselves to make sure that their controls are as robust and effective as they possibly can be.
You often find as well that a lot of companies are weighed down with compliance, and regulation, and having to make sure that the paperwork is right, and that they are adhering to the next set of regulations that exist, and they take their finger off the pulse and they’re not really challenging what is going on in the organization as much as they can do. That’s just what happens in one country. If you then go cross-border you have got different regulations in different locations, and you often find that when there is a scandal it often happens in a subsidiary of the bank in a remote location, and people aren’t as switched on as they should be.
How do you identify a potential rogue employee?
I think it is very difficult to identify rogue employees. What it needs, all of the time, is constant monitoring, analysing, looking at the analytical data that’s about and seeing where there are exceptions, and investigating those properly.
What tends to happen is that people make a piecemeal attempt at doing it so that they’re complying with the latest regulations that are about at that time, but it’s not intensive enough. In order to make yourself safe, as much as you possibly can, it’s almost like having a camera on the traders all the time so that you can monitor what is going on.
But, in the modern day environment, and you look at things like libel, a lot of that happened in social media. So, the data that’s required to be analysed and interpreted is vast and it is a difficult task. So there is no silver bullet that is going to stop rogue trading, you have to make sure that your controls and your governance is as robust as it possibly can be.
How risk aware are companies today?
Corporations are definitely paying more attention to risk management and risk management controls, but the problem is that if you just throw people at the problem it doesn’t solve it. You need good quality individuals who are in the right places, asking the right questions, pushing and probing in the right part of the organization, and challenging it and making sure that they interrogate and they investigate appropriately.
If you want a risk intelligent company, or a risk safe company, you need risk intelligent people. And that’s not just throwing, as is seen in the modern environment, we wont mention any particular bank, but you have a problem at a major international bank and what they will do is throw a lot of people at the problem and try to solve it that way. And that’s not necessarily the way to go – it’s about extracting the relevant data and using it in the most appropriate way.
So, it’s a blend of technology and people, but it all has to be quality, high quality, and you’re just trying to use the same people and upgrading them and trying to up-skill them, that’s not the way to go.
Is there a culture of passing the buck within banking?
Banking is a great industry for passing the buck down the line. If you look at so many treasury select committee meetings, so many Fed investigations, everybody denies and passes that responsibility down. But the buck has to stop somewhere, and it stops at the top of the organization.
It’s about culture, conduct and ethics, and the culture, conduct and they are determined by the person at the top. It needs to be a consistent, coherent policy that exists within the organization and it cant be one particular approach for somebody who works in trading, and another approach for someone that works in treasury. It does need to be consistent and coherent.
It’s now described as conduct risk, now conduct risk is exactly the same as what I did 20 years ago as everything that has happened in the industry. It’s getting a lot of focus right now because the regulators have decided that that’s what they should be looking at and making sure that the banks are compliant with. And I think it has already been admitted within the white papers that have been published to date that they are probably going to fail in doing it, but it just seems to be regulation gone mad and it’s not really addressing the real problem that exists. And changing a culture or a conduct is exceptionally difficult.
Should ‘star employees’ within an organization be allowed to go unchallenged?
Anybody who is making a lot of money within any organization, I suppose, is catapulted in to a position where they are admired, they are revered, and they get in to a situation sometimes where people don’t like challenging them, and that can’t exist within an organization – everybody has to be treated the same way.
I mean I was the star trader at Barings at the time, I was responsible for making the most amount of money, I was the outlier on every metric that you could measure, be that the number of trades, the profits I was reporting, the margin that was required. That catapulted me to a position that people certainly admired because they believed the story.
But, what that did at the same time is it meant they really didn’t push the questions because they didn’t want to rock the boat of the guy who was making all of the money at that particular moment, and that meant that I wasn’t challenged the way that I should have been during that period, and that ultimately led to the collapse of the bank.
How do you keep your finger on the pulse within the financial sector?
I mean over the last 20 years, obviously, I have not worked in mainstream financial services, but I talk around the world. So, you’re always meeting people who are at the cutting edge of what’s going on in that particular location.
My skill set is an amalgam of all those events that I do and those people that I talk to. I’m not the pariah that some people may think in financial markets and the introductions and the talks that I do are at a level where you are always allowed access to information that tells you exactly what’s going on in that location, and it’s an amalgam of all of that, and obviously I still watch Bloomberg or Reuters, and see what’s going on.
I think the way that the problems that the market face now are not dissimilar to what they were 20 years ago, they have moved on and they have increased in complexity, but it is about good systems, controls, it’s about people, it’s about asking the difficult questions. Those things rung true 20 years ago and they do today.
Can you recall your first speaking engagement?
I think my first after-dinner that I was asked to do was the British Medical Association, and I think it could have been for Virgin, I don’t remember totally to be honest with you. I would have described myself as quite introverted, up until that time, certainly wasn’t extrovert. I kept my feelings and what was happening to me very much to myself. So it was cathartic and it was empowering in many ways, because it was the first time I had to stand up in front of a big audience, but you have to learn how to.
Speaking is not something that everybody immediately does well. So over a period of time it’s changed. I think in the beginning you try to be too funny, I think it is important you don’t take all of the humour out, but it has to be appropriate so you have to get the tone right, and delivery is very important.
At this stage I would describe myself as an accomplished speaker and I think I get the tone right - I never have any complaints, so I must be doing something right.
What is the most important take-away message from your speech?
The take-away messages from my talk are all very different. You know, from a personal perspective I made a lot of mistakes, and I never asked questions, I never asked for help, I was never a great communicator, and all of those things have needed to improve in my own life, but anybody embarking on a career, whether it’s banking, or insurance, or absolutely any career, you shouldn’t be scared to ask questions, and asking for help and advise. Because, if I had asked for help and advise 20 years ago, or 23 years ago at the start of when things started to go wrong at Barings in Singapore, the story would be very different because I was surrounded by people who could help me, but being as young as I was I thought I could cope and ultimately couldn’t.
If you create an organization where people are scared of making mistakes they will hide them, and that shouldn’t be allowed to happen either. Obviously I came through, from an organizational perspective you are looking at the systems, the controls, the quality of the people, improving the communication, improving the conduct and the culture within the organization, and I talk about those at a great length as well.
But there were times when I was in prison in Singapore where you really feel like ending it because you just don’t know how you’re going to survive, but we all have that strength. So, some people who are suffering difficult times at that particular moment in their life see some sort of strength or gain some strength from what I managed to overcome then I think that is hugely positive as well.
So, I think the takeaways are very varied and there’s a good number of them.
What’s the most unusual question you’ve been asked?
I am extremely candid in my Q&A sessions. I have had some strange questions over the years and I can’t remember what the strangest is, but there have been a few. They tend to be statements more than questions.
I was at one university event and somebody stood up and said ‘what’s it like to be an anarchist icon?’ and threw me for a bit, and then I remember another statement, which again was made at a university, which related to lady-boys, but I cant immediately remember what the question was either.
But, there are some very abstract questions and the ones that genuinely, the ones that make you think differently about something. I don’t want to deliver an answer that people don’t believe so if I don’t give a full enough answer I like people to push me and try to extract more from me. So sometimes the more questions that focus on the psychology and what you were thinking at particular moments, because it’s not something that I necessarily focus on.
I did a lot when I was in prison in Singapore, but taking you back to those times, and trying to get underneath some of the decision-making processes and what other people were thinking is still illuminating for me from time to time.
How do organisations benefit from having Nick Leeson’s speech at their event?
I think the value in me talking at an event is -there is lots of different things-but you’re not scared of your mistakes and I think sometimes it’s almost as if when you have Nick Leeson speaking at an event where it’s based on system security or governance I think you’re almost giving out the opposite message in terms of ‘we are not scared of things like this because we are good enough to overcome it’.
So I’m not scared to talk about mistakes, so I do focus in to a lot of thought processes that I went through during that time, and why I made some of the decisions that I made, and what I should have done, because I have had an awful lot of time to think about it. I think there are some very important key messages that get passed over to people in the organization.
I very freely admit that I wasn’t a great communicator that there wasn’t great communication within the organization, and encouraging people to talk and to communicate is a huge thing. It’s not something that men do particularly well, women probably do it a little bit better, but men don’t, and if you can create an environment where people feel safer, where people can communicate better, then you have got a better organization than you had the day before.
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