Barclays has been at the centre of a series of scandals for much of 2012. But hiring the former FSA chief executive suggests the group intends to make good on its pledge to become more socially-responsible – and the rest of the financial services industry should look to this as an example.
Sants will join Barclays on 21 January 2013 as its head of compliance and government and regulatory relations. The newly created role means all the group’s compliance staff will report to one individual for the first time.
Antony Jenkins, who replaced Bob Diamond as Barclays group chief executive after this year’s Libor-rigging scandal, said the appointment was “a clear signal of intent” of his commitment to making the bank’s culture more aligned with compliance.
A troubled 2012 for Barclays
Barclays weathered a number of storms this year. In February it was forced to pay an extra £500m in tax to the UK government after being accused of using two complex tax avoidance schemes while in March the FSA opened an investigation into allegations the bank had mis-sold complex financial contracts – and eventually decided it was guilty.
June saw Barclays become engulfed in the Libor-rigging scandal as it was fined £290m by UK and US regulators after some of its traders attempted to manipulate the key interbank lending rate. The scandal paved the way for the departure of Diamond, who was replaced by Jenkins in August.
In July, the Serious Fraud Office started investigating payments between Barclays and Qatar Holding, which is part of the Qatar Investment Authority sovereign wealth fund.
In October, it was revealed that authorities in the US are carrying out two separate probes into the bank’s activities – including one by the US Federal Energy Regulatory Commission into attempts to manipulate Californian power prices between 2006 and 2008.
But Barclays has tried to salvage its tarnished image. For example, Jenkins wants to overhaul the bank’s bonus system to reward employees based on a new “balance scorecard” that examines how their actions have affected customers, investors, other employees, society and other stakeholders.
How can Sants help Barclays?
Sants, who was the chief executive of the FSA from July 2007 to July 2012, has spent a large part of his career working in investment banking, holding roles at UBS, Donaldson Lufkin & Jenrette and Credit Suisse First Boston. He brings with him experience and knowledge from both sides of the fence which will prove valuable in aiding Barclays to follow the spirit and letter of regulation.
Speaking as head of the FSA earlier this year, Sants said: “Ultimately, management are responsible for running firms and ultimately firms fail because of the decisions taken by their boards and their management. These decisions are made within a firm’s corporate governance framework.
“The crisis exposed significant shortcomings in the governance and risk management of firms and the culture and ethics which underpin them. This is not principally a structural issue. It is a failure in behaviour, attitude and in some cases, competence.”
Sants also highlighted five key indicators that warn financial services firm is likely to have a culture of poor governance. This are a dysfunctional board; a domineering CEO; key posts held by individuals without the required technical competence; inadequate ‘four-eyes’ oversight of risk; and an inadequate understanding of the aggregation of risk.
He also made three recommendations for boards aiming for effective governance, stressing the need for them to set the right tone when it comes to compliance, feature members with the right technical skills, values and character, and ensure the executive team accurately implements its strategic plan.
It is this kind of strategy we should expect Sants to take when he starts at Barclays in the new year – a top-down approach where compliance is placed at the core of a financial services company, rather than something tagged onto its ‘real’ activities.
Setting an example for the rest of the industry
Sants has the experience, knowledge and, just as importantly, reputation to help Barclays overcome the slights to its image that the recent past has brought. Not all members of the financial services industry can count on bringing in a former FSA chief executive to bolster their compliance record, but they can learn a thing or two from Barclays.
Recent research by global law firm DLA Piper and accountancy group BDO discovered that the vast majority of financial services companies are concerned about the incoming Financial Conduct Authority’s increased attention on culture.
While Barclays may not have set the best example of compliance in the past, bringing in Sants shows a renewed commitment to adopt the behaviour, attitude and competence needed for effective compliance. It has placed greater pressure upon itself by making such a high-profile appointment as more eyes will be watching its progress.
The coming year brings a number of regulatory challenges for financial firms of all kinds – the RDR being the most pressing but followed by a host of others. These demands are not going away and, despite their apparent inconvenience, are intended to make the financial services industry a better place.
So what can the industry learn from Barclays? That you can’t hide from compliance and regulation, I would suggest. Barclays has, in a sense, tried to bring the spirit of the regulator in-house and it would be a welcome trend if more firms adopted this sentiment.
