I met up with an old friend yesterday who I regard as one of the most knowledgeable chaps in middle office processing and infrastructure in the investment banking space. He can bore the Europe on reference data, corporate action and broking operations, as well as related IT.
Inevitably we chatted about the SocGen debacle and agreed it was incredible how so many controls could have been skipped without the collusion of management.
Yet one other troubling aspect more generally applicable to capital markets firms is that so few people inside firms genuinely understand how things fit together – controls, processes, data and systems. At one time firms benefitted from being of a size and organisational structure that enable people to have a holistic view. In my own case, I was fortunate to work across asset classes, control frameworks, systems and processes backed up by strong financial/accounting skills. Today, such opportunities are almost non-existent thanks to business scale and the silo product and department structures which preclude anyone from building up a broad understanding.
This enormous deficiency helps explain why the ramifications of an issue often aren’t fully understood – people simply lack the big picture and awareness of inter-dependencies of systems and controls. This is amplified when one adds in geographic segregation, leading to cells that focus solely on a product/region/function and where straying across battle lines is frowned upon or indeed actively discouraged.
The “experts” with this knowledge still exist but don’t easily fit inside the cell structures. They are frustrated and the organisations struggle to find them a home. Labelled as “jack of all trades”, they usually had significant mastery of the accompanying detail and were formerly the glue that ensured cohesiveness. The absence of future generations of Jacks does not bode well and the ramifications are only now manifesting themselves.
I’m sure mine is not the only industry to be suffering from this problem.