Securities & INVESTMENT september 2013

REthe members’ magazine of theV chartered instituteI forE securities &W investment cisi.org/sireview

Credit unions A poor alternative A new to payday loans, p5 MINDSET Behavioural finance – the big All change It’s time to rethink idea among regulators, page 12 the approved persons regime, p16 We offer training in: Derivatives Financial derivatives Financial derivatives module

We have small classes We can offer flexible hours We are based in the city of , but can offer you flexible venues

KBW Associates Ltd. 42/44 Bishopsgate London EC2N 4AH 0207 374 8006 [email protected] Securities & Investment september 2013 REVIEW Editor Rob Haynes Consultant Editor Andrew Davis 16 18 Art Director Steven Gibbon Publisher David Poulton Production Director John Faulkner Managing Director Claire Oldfield Chief Executive Martin MacConnol Advertising Sales Yanina Stachura +44 20 7010 0945 [email protected] Cover illustration Joel Holland for Dutch Uncle Published on behalf of the Chartered Institute for Securities & Investment by Wardour, 5th Floor, Drury House 34–43 Russell Street London WC2B 5HA Telephone: +44 20 7010 0999 Fax: +44 20 7010 0900 www.wardour.co.uk ISSN: 1357-7069 12

Communications Editor, Chartered Institute for Securities & Investment Richard Mitchell Contents 8 Eastcheap, London EC3M 1AE Telephone: +44 20 7645 0749 Features Members’ features Regulars Email: [email protected] 12 behaviour problems 22 cpd: change of fortune 5 city view The Financial Conduct Nigel Sillitoe looks at the The CISI looks at credit unions, Authority is turning to the emerging markets of the and questions whether they Editorial panel Peter Land, Chartered Brewin Dolphin study of behavioural finance Middle East offer a viable alternative to FCSI, Chairman for regulatory insight. payday lending Suren Chellappah FCSI Sanford C Bernstein Moorad Choudhry FCSI Royal of Rob Haynes reports 24 personal favours Simon Culhane, Chartered Institute for Chartered FCSI Securities & Investment A non-executive director 6 upfront Scott Dobbie FCSI(Hon) 16 status approved may have wrongly solicited News and views from Mike Gould FCSI I nvestment Management Association Chris Alkan finds fault with information from the bank members of the CISI, Amy Lazenby, Chartered FCSI the regulators’ approach to he works for including our regular back Jeannette Lichner MCSI FTI Consulting accrediting and monitoring story by Clay ‘Mudlark’ Harris Gregor Logan MCSI Paul Loughlin, Rathbone Investment approved persons 26 need to read Chartered MCSI Management Robert Merrifield, Catch up with this 11 first person Chartered FCSI 20 in the coffers month’s essential reading Christopher Adams looks at the Richard Mitchell Chartered Institute for Securities & Investment Five years since the collapse threats posed by ever more Frank Reardon, JM Finn of , have sophisticated computer viruses Chartered FCSI 27 diary Patricia Robertson, Westport Global capital adequacy rules CISI events and admissions Chartered FCSI changed for the better? 18 profile: sir david Jeremy Robinson, Charles Stanley Chartered FCSI Dan Barnes investigates 30 people: new lease of life omand gcb Hamish Rowan-Hamilton TheCityUK Graham Ross Russell The S&IR speaks to the Markus Ruetimann FCSI Schroder FCSI(Hon) talks about life retired security expert about Nimrod Schwarzmann after retirement his career and interests Arjuna Sittampalam, Sage & Hermes Chartered MCSI Nigel Sydenham, BPP Professional Education Chartered FCSI Alan Yarrow, Chartered Institute for Chartered FCSI(Hon) Securities & Investment

Average audited circulation: 16,665 for period July 2010 – June 2011 © The Chartered Institute for Securities & Investment (CISI). All rights reserved. Reproduction in whole or part prohibited without prior permission of the CISI. The CISI and Wardour accept no responsibility for the views expressed by contributors to the Securities & Investment Review; or for unsolicited manuscripts, photographs or illustrations; or for errors in articles or advertisements in the Securities & Investment Review. The views expressed in the Securities & Investment Review are not necessarily those held by the CISI or its members.

3 xxxx

4 November/December 2012 cisi.org

city view

cisi opinion The Archbishop of Canterbury wants to fight payday loans with the help of credit unions. The reality, however, is that the two lenders appeal to quite different markets Too many debits for credit unions

archbishop welby, fresh from flaying members to borrow the during his participation on the immediately and, if they do, the Parliamentary Commission on Banking interest rate is charged at the Standards, has announced that he is going to same rate as banks charge for expand and promote credit unions, which he unauthorised borrowing. Most insist sees as the solution to providing personal that the member saves regularly, often for a microfinance to those who need it most. His minimum of eight weeks. Some, like the backing for credit unions has been portrayed Area Union, require three months as a Holy War that will take on, and compete out of saving first. Even when they can borrow, of business, the payday lenders, which the the member is often restricted to a multiple of Archbishop bitterly criticises for their usurious what they have already saved. For example, the interest rates. Blantyre & South Lanarkshire Credit Union This makes for great headlines. However, will lend only twice what has been saved. therefore borrow only £300, still repaying at £20 while credit unions have a part to play in The process of borrowing is the antithesis of a month, the total interest bill is only £29 and it helping people manage their long-term finances, payday lenders. Nearly all credit unions require can be paid off a year earlier. they are not in the same space as either banks the completion of an in-depth application form, Furthermore, credit unions do not pay or payday lenders. which goes to a lending committee. Payday interest on the money saved. At the end of the Credit unions have several structural year, if the organisation is solvent, a dividend is disadvantages. Most notable among these is declared that is distributed on a pro-rata basis the requirement that individuals can join only Credit unions are not in among savers. This can be zero. Solvency is a if they have a common bond, such as living in real problem – last year six credit unions went a defined area, working for the same employer the same space as either bust. So far in 2013, that number is five and the or belonging to a particular church or trade expectation is for more to come. union. The logic is that, as the funds are recycled banks or payday lenders Credit unions are not straightforward and between a small group who know each other, have their own idiosyncrasies. They are not a individuals make more effort to repay. However, lenders accept applications online and give an substitute for payday lenders, whose immediacy there are only around 400 credit unions in the answer in 30 minutes. and transparency are their two advantages. UK, covering less than 2% of the population. There’s a further catch. When borrowing, However, the Archbishop should remember Furthermore, credit unions are far from easy usually, a member of a credit union cannot that it’s not just the interest rates that are to set up and operate. The Financial Conduct withdraw all the money they have saved to put important; it’s the total cost of borrowing. The Authority rules that govern them are only towards the loan. The amount of their savings most expensive place to borrow short-term, slightly less onerous than those for running a must remain above a certain threshold. low-value money is the banks, whose interest bank. To be allowed to operate, credit unions Therefore, the individual has to, in effect, rates are considered ‘reasonable’ but whose need to establish a myriad of risk, internal audit borrow their own money, which significantly additional fees, especially for unauthorised and compliance committees, adhere to a increases the effective rate and duration of the borrowing – which is the real competition to comprehensive rule book and have strict limits loan. For example, if an individual has saved payday lending – make their APR more for lending and borrowing. £200 but needs £500, rather than borrow just expensive than that of most payday lenders. Before an individual can borrow from a credit the £300, they have to borrow all £500. If that No wonder the banks are keeping quiet while union, he or she needs to become a member, individual repays at £20 a month, a loan that the Archbishop takes on the payday lenders. The which often involves paying a modest fee. takes 29 months will incur £78 in interest. last thing the banks want is for the spotlight to It is rare for credit unions to allow new However, if he is able to use his savings and be turned on their true APR lending rates. n

5 Upfront News and views from the CISI

compliance and risk CISI announces two new awards 60-second interview Professor Moorad Two new awards have been launched by CISI Choudhry FCSI professional forums to celebrate the achievements of industry practitioners. The awards are for: Cutting-edge research into financial • Outstanding Compliance Professional 2013 services will be delivered in a new • Outstanding Risk Professional 2013. quarterly academic journal that will All Institute members are being invited to nominate candidates for recognition. Nominees be published in the S&IR. Professor must be full CISI members. Moorad Choudhry FCSI has been The winners will be selected by the relevant appointed as Editor of the journal, entitled InCISIve, forum committee based on their thought and previews the publication, which will be leadership and contribution to the industry. launched shortly. Nominations should be made using an electronic form on the CISI website by 5pm on Why is the CISI launching InCISIve? This 20 September 2013. The awards will be Q journal will be an important new tool to help presented at the CISI London Annual Dinner members maintain their competence. It will support on 28 November. Julian Sampson, Chartered FCSI the CISI’s charitable objectives, which include the Julian Sampson, Chartered FCSI, Chairman of advancement of knowledge in the field of securities the Compliance Professional Forum, said: “The and investments, and to act as an authoritative body introduction of the CISI Outstanding Compliance for consultation and research related to the industry. Professional award marks a new benchmark for the CISI in general and the Compliance Professional What can members expect from the journal? Forum in particular. I am looking forward to Each 12-page edition will include original reading the nominations for candidates in all Q blind-peer-reviewed papers covering technical fields of financial services compliance, at aspects of capital markets, wealth management and whatever career level they might be.” banking. We expect contributors to come from both Dennis Cox FCSI, Chairman of the Risk Professional Forum, commented: “Being a the academic and practitioner sectors. The journal’s successful risk manager requires skill, tact and editorial slant will be towards papers of practical knowledge. In recognising the contribution that value to financial institutions, with conclusions that our members make through these new awards, should include recommendations that can hopefully the CISI is seeking to identify those risk managers assist firms working towards business best practices. that really add value.” Can members contribute? Of course. The Nomination forms and full guidelines for the awards can be found at cisi.org/annualdinner13 Dennis Cox FCSI Q launch provides an opportunity for members to put forward their own research papers, of between 1,500 and 3,000 words in length, for consideration publications In business, knowledge is power, and the CISI for publication to a worldwide audience. publication, Change – the regulatory update, is a Regulatory good example. You and your firm are exposed to a What has inspired you to become involved? range of unforeseen problems if you do not know what Q My links with the CISI go back to when it was regulators want from you. How would you deal with an set up. I was one of the original student members and update unexpected theme visit or an awkward questionnaire? took its Diploma exams in 1992–93. For some years, Should you make that phone call to the regulator I’ve been a member of the CISI Editorial Panel, which about that insignificant (or possibly significant) chooses articles for the S&IR, and this development matter? Is your senior management team prepared for naturally excites me. I think it’s important that the the rapid change in the regulator’s priorities, such as world of finance academia and the City have more their enquiries into the firm’s business model? crossover and interaction, and a practitioner- All these are equally good reasons to look through a comprehensive description of the larger trends and organisation academic journal is a great way to smaller practical details in regulation that you can strengthen such links. I’m looking forward to working find in the September edition of Change. with the journal’s editorial board, which will be a mix The edition covers not only the big changes from of practitioners and academics, who will select and EU rules but also the developing supervision policies commission content, in addition to reviewing papers. towards wholesale and asset management. These are outlined in summaries of the changes and the For further information about the academic journal, including guidelines for submitting papers and a brief biography of Professor sources will point you towards more information. Choudhry, see cisi.org/academic

View the edition at cisi.org/change

6 September 2013 cisi.org

The number of bank failures in the US since the onset of the financial crisis in 2008. For more on strengthening the banks through adjusting capital 478 adequacy ratios, turn to page 20 ➳ education Students win recognition The CISI has announced the winners of its The other candidates who attended the Educational Trust Awards 2013. The awards interview selection at the CISI office in are open to students studying finance MAs at London were: Ryan Lightfoot, University universities which are accredited by the CISI of the West of ; Priyesh Prasad, as Centres of Excellence. Caledonian University; Wenzhi Zhu, To qualify for an initial £2,500 award, University of Birmingham; Binjain Zhang, candidates had to be nominated by their ICMA Centre in Reading. own university. An additional five candidates, who were The qualifying group was invited to attend unable to attend the final selection interview the CISI offices to complete a general process, received awards. knowledge test and undergo a 30-minute CISI Educational Trust Chairman Clare Gore panel interview. Langton, Chartered FCSI(Hon) said: “We This year, candidates were each asked to congratulate all of the successful candidates speak for five minutes on the debate topic who have won the 2013 Educational Trust ‘Large multinational corporations paying Awards. The panel was most impressed with minimal income tax is unethical’, following Mariyan Dimitrov, who demonstrated a clear which they discussed their views with the Mariyan Dimitrov from Cass Business School receives his award understanding of the issues surrounding the panel for a further ten minutes. from CISI Educational Trust Chairman Clare Gore Langton, taxing of multinationals’ profits and articulated Chartered FCSI(Hon) The interview process allowed the final his arguments succinctly. We wish him, and candidates to double their initial award to this award. This achievement recognises my all our scholarship winners, every success for £5,000, a feat achieved by Mariyan Dimitrov efforts during my academic studies at Cass their future careers.” of Cass Business School, London. Business School and sets an example to others Mariyan said: “I am extremely grateful to the that with determination and hard work one can For further information about the CISI Educational Trust, CISI Educational Trust for honouring me with accomplish great things.” see cisi.org/cisiedtrust

events branch dinners Notice of Annual Guest General Meeting speakers

The Annual General Meeting of the What do explorer Sir Ranulph Fiennes, Institute will be held at the CISI, broadcaster Eve Pollard, entertainer 8 Eastcheap, London EC3M 1AE on Nicholas Parsons and ex-boxer Frank Wednesday 25 September 2013 Bruno have in common? The answer at 10.30am. is that they are all guest Fellows (FCSI) and members speakers at forthcoming (MCSI) of the Institute may vote on CISI branch dinners. the resolutions by: Sir Ranulph Fiennes, who has led 22 • voting online using the link in the expeditions to remote parts of the world, The CISI East Anglia branch committee recently members’ section of the Institute’s will provide an insight into his adventures at held its 2013 annual dinner at website at cisi.org the Scotland Annual Dinner & Awards Ceremony Cathedral. Branch President Martin Warren, • using Form A to appoint the Chairman on 12 September. Chartered FCSI provided an insight into local as your proxy Eve Pollard, former editor of both the Sunday committee activities, while CISI Regional • using Form to appoint a proxy, Mirror and Sunday Express, will appear at the Isle Director Richard Bennett updated guests on who need not be a member, to of Man branch dinner on 18 October, while Institute-wide developments. After dinner, attend the meeting and vote on Nicholas Parsons, longstanding chairman of guests were entertained by business and your behalf BBC Radio 4’s Just a Minute comedy panel show, financial journalist Anthony Hilton. The dinner • attending the AGM and voting will guest at the & District event was sponsored by yourself. on 14 November. Perpetual. Former heavyweight world boxing champion Voting forms, whether completed Frank Bruno has proved a knockout draw to the Top: Eve Pollard and Sir Ranulph Fiennes. Right: East online or sent by post, must be South Coast dinner on 22 November, with the Anglia branch President received by the Company Secretary event already sold out. Martin Warren, Chartered no later than 11am on Monday FCSI with guest speaker 23 September 2013. For further details, turn to page 28 or visit cisi.org/events Anthony Hilton

7 news review

cpd New film explores issues of risk A Price Worth Paying? is a new film drama Film Award, A Price Worth Paying? features showing how important it is for directors an all-star cast of television and film and senior executives and officers to actors, including Phil Davis. monitor all risks affecting their companies Alan Thomson, Chairman of Hays and a and for boards to react in the right way Non-Executive Director at HSBC, has when a crisis strikes. A special CPD event called it “a superb quality film which raises survey in London on 16 October will begin a series awareness of important issues facing a of discussions of issues raised by the film board in the most dramatic fashion. It has CISI uncovers EU sentiment in CISI centres around Britain and overseas. been cleverly designed to provoke A slim majority of financial services players think The movie focuses on the difficult issues uncomfortable, but much needed, debate”. Britain should stay in the European Union – but of executive compensation, the evaluation The film will be introduced by Duncan almost one in three want to veto Brussels’ of risk around an acquisition in an Wiggetts and commentary will be provided meddling in financial services, according to a emerging market, the depth of enquiry of during breaks as the story unfolds by a CISI survey. When asked “How should Britain’s an audit committee and the adequacy of panel of expert speakers. Before the final relationship with the European Union develop?”, the response to a serious whistle-blower part of the film, there will be an open forum 55% indicated they supported continued allegation. It reinforces the importance of debate to give those in attendance the membership and 45% backed withdrawal. setting the right ‘tone from the top’ and opportunity to share their views and However, most of those who wanted a ‘Brexit’ the necessity for directors to ask all the experiences and to ask questions of the from the institutions of the EU said that Britain right questions. panellists and the film’s creator. should stay in the single market – the so-called Written by Dechert partner Duncan ‘Norwegian option’. Of those who wanted to Wiggetts and directed by Nick White who For a full round-up of the coming season of maintain full membership, about half said that was shortlisted for the BAFTA 2011 Short CISI events, please visit: cisi.org/events Britain should negotiate a veto over Brussels’ interference in financial services. TV and film star Phil Davis A mere 11% favoured the status quo, though is among 16% backed further integration with the rest of actors the EU, including a pledge to adopt the euro. appearing in A Price Worth More than 460 people took part in the survey. Paying? Interim results of the poll were revealed by the London Evening Standard, which is holding a major debate on this theme at the City’s Guildhall on 9 September.

To take part in the latest CISI survey, visit cisi.org

online BEST OF THE BLOGS

tinyurl.com/mpt-bf people, Lehrer continues, tend to make 1 (MPT) works mental short cuts when evaluating most of the time; when it doesn’t, we problems. On top of this, he says that the should find recourse to behavioural driving forces behind biases – the root finance. This is the view of Chris Gilchrist, causes of our irrationality – are largely who writes that MPT exhibits two crucial unconscious, which means they remain flaws. First, it doesn’t account for the lack impermeable to intelligence. of rationality of investors, with the professional refresher dot-com bubble being the perfect tinyurl.com/cfa-bf example of investors acting on emotion 3 The behavioural interpretation of more than information. Secondly, MPT finance does not impress everybody. Conflicts of interest assumes that investors harbour equal Jason Voss writes on the CFA Institute’s In the current climate, it is essential to be able preferences for risk in terms of profit and blog that the subject “frequently makes to identify and manage potential conflicts of loss. In fact, it takes £2 profit to make investment managers giggle”, and fails to investors recover from a £1 loss. offer solutions to the problems that it interest. A new module added to the CISI’s “adroitly” points out. So Voss has found Professional Refresher online learning system tinyurl.com/bf-newyorker some of his own ways of upping his examines the different types of conflicts of 2 If you are susceptible to the kind rationality, such as taking walks in the interest, recent high-profile cases, and the of investing mistakes identified by experts countryside and doing meditation. policies and procedures to put in place to avoid in behavioural finance, then rest assured them occurring. – it may be a sign of intelligence. Writing See page 12 for more on in The New Yorker, Jonah Lehrer cites behavioural finance. Professional Refresher consists of more than research conducted in the US that 50 modules that are free to CISI members, or for establishes a correlation between people £150 to non-members. Modules are also who are more susceptible to irrational Do you have a blog recommendation? available individually. decision-making and those who score Send it to the Editor: well in high school exams. Intelligent [email protected] View the conflicts of interest module and those on subjects including cyber crime and conduct risk at cisi.org/refresher

8 September 2013 cisi.org

➳ CLAY ‘MUDLARK’ HARRIS Neil Atkinson, Chartered MCSI, Vice President, BNY Mellon

Neil Atkinson, Chartered MCSI has accounting firm, and from there to Ivory introduced to, and impressed by, Bank made it all the way to Hong Kong, & Sime for his first taste of processes of New York’s American Depositary where his responsibilities for BNY such as corporate actions and securities Receipts team. “I liked the people, so Mellon’s depositary receipts business contracts. “It was a great company to I sent an email to Michael Cole-Fontayn include global transaction structuring work for, with great people,” Neil says. [now BNY Mellon’s Chairman for and execution, and Asia-Pacific By 1999, he decided he was “going to Europe, the Middle East and Africa].” product development. move, either to London or Glasgow”, Bank of New York (as it was known That doesn’t stop him from modestly presumably equally exotic for an before its merger with Mellon in 2007) protesting, as many successful bankers Edinburgh boy. The winner was hired him in broker/dealer services. He Neil Atkinson, Chartered MCSI do. “I was no good with numbers in London, where Neil managed a set up the company’s depositary receipts school,” he says. Neil worked as a corporate actions team for Cogent. transaction structuring function in Vice President, shelf-stacker and in restaurants and He then joined CREST to set up a London, helping clients with primary BNY Mellon considered the latter as a possible career UK custody service for international listings in markets such as Russia to before spotting a newspaper advert for diversify their shareholder base. Do you have a back-office story? . One of the first things he did on Neil worked in restaurants mudlarklives@ He joined its trustee and executory moving to Hong Kong in 2011 was to join hotmail.co.uk department, dealing with wills and before spotting a job advert the Hong Kong Securities Institute. estates. In addition to dealing with the for Bank of Scotland Through his own exams and subsequent filing and post, Neil also occasionally involvement with the CISI, he is an found himself at a deceased customer’s clients, before taking up a product enthusiastic advocate of networking and house waiting for the water to be turned management role for Euroclear with continued professional development. off. “For a 17-year-old, that was a bit responsibility for international services Among his CISI involvements, he morbid,” he adds. and corporate governance. helped to set and review content for the Another job was to go through share He participated in Paul Myners’ former CREST Settlement exam. He listings each day, write down prices and Shareholder Voting Working Group, gave a presentation on depositary take them to the typing pool to be when CREST was developing an receipts to CISI members when he prepared and sent to trust clients. electronic proxy voting service that visited London this summer. Neil then was sent out into Edinburgh Neil would later promote to companies. Neil also credits a time-honoured Dale branches. “I worked in Princes Street – “I think you could say that there wasn’t Carnegie Institute course, ‘How to win it’s now a Boots – and in Stockbridge – universal acceptance in the early days.” friends and influence people’. He says: it’s now a restaurant.” While at Euroclear, Neil attended a “If it were not for that course, I might At 21, he felt he needed a change, so meeting about the restructuring of Royal not have had the confidence to send that moved to WM, an investment Dutch Shell’s shares where he was email to Michael Cole-Fontayn.” Illustration: Luke Wilson Luke Illustration:

select benefits branches Just the ticket! Two local presidents appointed Two CISI branches have appointed new presidents. Taking on the role in the South East, following the launch of the branch last year, is Robert Forbes, Chartered FCSI, Senior Manager, Back Office Operations at Jupiter Asset Management. The branch was set up for the benefit of members employed by financial Robert Forbes, Chartered FCSI (left), and Jonathan services firms in Kent and those who Leece, Chartered FCSI commute to London from the area. Through CISI Select Benefits, Institute members can save Robert said: “The branch is bringing branch. He is Compliance Officer, an average of 38% on cinema tickets. members together to create a local Money Laundering Reporting Officer Purchase vouchers to be used at your nearest business network and to provide and Company Secretary of the Premier participating cinema (including Cinemas, opportunities to enhance their CPD Group (Isle of Man), a fund manager. ODEON, Empire and Showcase) at discounted prices. through seminars covering topics from He has more than 15 years of You can buy up to five pairs of cut-price cinema tickets investment management to experience in the finance sector, per calendar month. Better still, these tickets are valid for administration and compliance.” covering areas including compliance, a minimum of six months. The branch is keen to hear from banking, corporate and trust and anyone who would be interested in investment management. Purchase cinema tickets online by logging on to CISI Select Benefits joining its committee. For more details, Jonathan said: “The work the CISI via cisi.org/memberlogin please contact [email protected]. has done in the Isle of Man is Terms and conditions apply. See website for details. Correct at time of print. Jonathan Leece, Chartered FCSI is something to be proud of and I hope to CISI Select Benefits is managed on behalf of the CISI by Parliament Hill Ltd. the new President of the Isle of Man continue with that.”

9 news review Dr Nicholas Motson, Centre for Asset Management Research, Cass Ask the experts… Business School charity walk WHAT IS SMART BETA? CISI team takes on ‘Smart beta’ refers to an alternative method of strategy would have saved any investor from weighting investments in indices, compared the dot-com bubble experience. In the mountain challenge with the more conventional market fundamental approach to weighting, investors capitalisation approach. The most simple wouldn’t have had that exposure to dot-com A four-strong team from the CISI will tackle example of the smart beta approach is equal companies because they didn’t produce the Jebel Toubkal, which, at 4,167 metres, is the weighting of the stocks in the index, while more sales and they didn’t have the balance sheets. highest mountain in the Arab world. The complex approaches include weighting by risk, The bulk of the outperformance over the 43 trek will benefit the UK healthcare charity weighting by fundamental factors, or years is a result of the stronger returns of value Merlin, which has joined Save the Children. optimising to maximise diversification or versus growth stocks, which is well known. Team member Nicola Levett ACSI said: minimise risk. With the emergence of low- Another example is the outperformance of “We’re doing our bit to help Merlin. When volatility smart beta products over the past four low-volatility stocks. While finance theory disaster strikes, Merlin’s medical experts are years or so, it feels like these products are might suggest that the higher the risk or there, doing whatever it takes to save lives. opening up to the masses and are being volatility of a stock, the higher the return And when the cameras have moved on, they packaged into a passive-style product. should be, what we found is that stocks with stay. Taking communities from emergency The standard approach for the past half low volatility actually outperform stocks with to recovery, Merlin works together with local century has been to weight stocks by their high volatility. This anomaly has been known professionals to revive health services in market capitalisation, so that an investor ends about since the 1970s, but the finance industry some of the world’s toughest places. It’s a up holding more securities of large-cap firms has only just begun to offer products to exploit great cause.” and fewer of small-cap firms. Critics of this this, such as indices weighted by the inverse of approach point out that this can lead to highly volatility (or low-volatility smart beta indices). For more information, please visit cisi.org/merlin and concentrated indices with a small number of There are some concerns about smart beta follow #toubkal4merlin stocks making up a large proportion of the products. Notably, even though these products index. To some extent, the rise of smart beta is outperformed the cap-index approach over seen as a solution to this problem. 43 years, there are periods when they A recent study, conducted by myself and underperform dramatically. For example, in the colleagues Professor Andrew Clare and late 1990s you could get underperformance of Professor Stephen Thomas, examined 13 smart up to about 40–50% over a three-year period beta alternative-weighting schemes on a and, behaviourally, the way that people react is common set of US stocks. We found that, over through remorse. People feel more pain by the past 43 years, all 13 ‘smart beta’ alternative- underperforming a benchmark than they feel weighting schemes we studied would have relief by outperforming it. outperformed the market-cap approach, which was initially somewhat of a surprise. However, To read the research published by Dr Motson and his further examination showed that the bulk of colleages, visit tinyurl.com/cass-smartbeta this outperformance was coming from risk Professor Andrew Clare from Cass Business School will premia that we already know exist. be a speaker at a CISI London CPD event on 14 October, A good example of this is the approach of entitled ‘Smart Beta: Market Cap or Monkey?’ For details weighting according to fundamentals, which see cisi.org/events are effectively based off company balance Do you have a question about anything from tax to

sheets and sales etc. Following this type of virtual trading? [email protected] From left, team members George Littlejohn MCSI, Nadia Hassan, Nicola Levett ACSI and Alex Blunden

quick quiz

Test your industry knowledge Q1. Which ONE of the following is a characteristic of investment trusts? A) The shares are dual priced to include all charges B) The shares can only be traded with the manager C) They are open-ended collective investment vehicles D) They are permitted to have long-term borrowings

Q2. Which of the following exchanges regularly trades in CAC40 futures? A) NYSE Liffe B) Eurex C) ICE Futures Europe D) EDX London

Q3. A key role of the Bank for International Settlements is to provide: A) Financial services to corporate entities B) General banking services to private Illustration: Cameron Law Cameron Illustration: individuals C) Money laundering guidelines to national regulators D) Supervisory The S&IR’s Quick Quiz features questions from CISI standards for central banks elearning products, which are interactive revision aids to help candidates prepare for their exams. Q4. Which ONE of the following is NOT a type of behaviour covered by the market Answers are on page 29. abuse regime? A) Dealing in closed periods B) Improper disclosure C) Manipulating transactions To order CISI elearning products, please call the Customer D) Misuse of information Support Centre on +44 20 7645 0777 or visit cisi.org

10 September 2013 cisi.org

first person

Malicious minds As the likelihood of a major cyber attack on the financial markets grows, few of the world’s major exchanges have adequate defences. Now is the time they should consider their options red october, Operation prosecutors claimed amounted large-scale attack and many High Roller and Operation to the biggest case of hacking think that existing sanctions for Aurora. The above may read and data theft brought in US cyber crime are too puny to like a list of spy novels, but history. The alleged thefts were deter attacks. their contents are far from said to have resulted in at least The problem, then, is not so fictional. All were very real, $300m in losses to financial much a lack of awareness of the high-profile attacks by a new companies and retailers. breed of cyber criminal on It can only be a matter of the computer systems of time before somebody tries It is a matter of time banks, technology and something big in financial defence companies, and markets, such as an operation before something big hits national governments. designed to cause chaos in the financial markets A little noticed report, securities trading. slipped out by the International That is the view of the Organization of Securities exchanges, not mine. Nearly risks posed by hackers. Rather, Commissions (IOSCO), titled 50 took part in a survey for the it is a sense that exchanges are Cyber-crime, Securities Markets report, identifying a number falling behind in the technology and Systemic Risk, contains some of scenarios with far-reaching arms race to fight off unseen startling headline findings. consequences. These include a and well-resourced actors. More than half the world’s halt to trading, the targeting of IOSCO proposes a securities exchanges have been telecoms networks to disrupt number of boiler plate-style attacked by hackers over the market access, leaks of inside initiatives, including self- last year. Two-thirds of information and the infiltration evident risk management and exchanges in the Americas have of multiple exchanges. information sharing. reported an attack. For securities markets, the But without an intense You probably didn’t notice. threat is palpable. One attack cross-border effort by For the most part they were on an exchange operator has the authorities to beef simple ‘denial of service’ already used ‘malware’ – up sanctions and attacks, where hackers malicious computer code – to enforce laws across overload a website or computer get into an application that different jurisdictions, network with information stored potentially market- it is hard to know what requests to try to bring it down. moving data on Fortune 500 will stop the most There was little evidence of companies. Imagine what could determined hackers. attempted financial theft. And happen if the perpetrators of Tracking down none of the attacks has come High Roller or Aurora decided more of them and close to knocking out to tackle the London Stock throwing them in exchanges’ trading platforms. Exchange, NYSE or Deutsche jail would be a start – So far, that is. Börse. The interconnectedness but that demands of financial markets, the resources and Reality check lightning quick speeds at co-operation on a scale The IOSCO report, though, is which deals take place and the that we’ve yet to see. a sober read. Operation High proliferation of automated Exchanges need to Roller siphoned as much as trading mean that, for all invest a good deal $2.5bn from bank accounts the safeguards in place, the more in the fight in Europe, the US and Latin effects of a sophisticated against the hackers, America. Aurora targeted attack could ripple quickly too. Perhaps when Google, Adobe, Juniper across the globe. the financial Networks, Yahoo! and What’s being done about equivalent of Stuxnet Northrop Grumman, this? The IOSCO report strikes, those modifying source code by suggests that most exchanges resources will be exploiting vulnerabilities in have formal plans in place for forthcoming. But a web browser. dealing with cyber attacks and they’ll be coming In July, US authorities that the most disruptive are at a price. n charged five people for their usually detected within 48 role in a prolific hacking hours of infection. But nearly Christopher organisation that allegedly stole a quarter of respondents Adams is the more than 160 million credit admit that their systems may Financial Times’ card numbers, in what be unable to cope with a markets editor

11 Behaviour PROBLEMS

The financial regulator is becoming increasingly worried that firms are exploiting customers’ biases. What are they concerned about and how far should regulation go? Rob Haynes investigates

do you always make rational financial latterly, behavioural finance), a growing impart the lesson that probably many people decisions? area of interest challenging the assumption suspected for a long time – that consumers Suppose that you are in a queue at the local of rationality that is central to traditional don’t always act with rationality, especially theatre and have paid £40 for a ticket. As you economic theory. The potency of Kahneman’s with respect to risk and return.” enter the theatre, you find out that you have discoveries earned him a Nobel Prize in That traditional theory is based on ‘homo lost your ticket, which cannot be recovered. Economics in 2002. In more recent times, economicus’, a term that describes people Would you pay £40 for another one? behavioural finance has been attracting the as able to make fully rational decisions According to research conducted by Daniel attentions of the Financial Conduct Authority about what is in their own best economic, or Kahneman, Professor Emeritus of Psychology (FCA), as well as those at government level financial, interests. and Public Affairs at Princeton University (see The Government’s Nudge Unit, on page 14). “We can say traditional or neoclassical in the US, 46% of people would stump up the “Behavioural economics isn’t really one economic models are akin to the models extra cash. unified theory,” explains Nigel Sydenham, of Newtonian physics,” explains Trevor Now imagine that you are queueing to buy Chartered FCSI, a tutor at BPP Professional Neil MCSI, Director at Beta Group, a firm a similar ticket, again for £40. As you enter Education and author of the CISI’s that specialises in offering insights from the theatre, you find out that you have lost £40 Professional Refresher elearning module on behavioural economics to banks and financial from your wallet. Would you still pay £40 to behavioural finance. “Rather, it is a collection institutions. “These models are elegant and see the show? According to Kahneman, 88% of results, based mainly on psychology, that theoretically useful abstractions, but leave of people say they would not. out many of the details that make real life This is a peculiar outcome, as in both more complex. A cornerstone of neoclassical scenarios the financial positions of both Traditional economic economics is the assumption that people subjects are effectively the same. theory is elegant, but leaves are generally capable of making economic This well-known result – an instance decisions consistently to maximise their of an effect called ‘framing’ – is but one out many of the details that own interests.” discovery about human responses that make real life more complex Homo economicus would, for instance,

has spawned behavioural economics (and, have provided Kahneman with consistent Uncle for Dutch Holland Joel Illustration:

12 September 2013 cisi.org

cover story

answers to the theatre scenarios. He would The FCA and behavioural finance also be impervious to other effects observed in behavioural economics, such as over- In its Occasional Paper, Applying exploit this bias by presenting irrelevant extrapolation, projection bias, using rules Behavioural Economics at the Financial information based on small samples, of thumb and a host of other behavioural phenomena observed by academics (see The Conduct Authority, the FCA identifies ten meaning that it may have to regulate over FCA and behavioural finance, left). areas where it thinks firms may be in a what, and how, information is provided position to exploit their customers. These by financial firms. A new way include: present bias (people make choices Other terms of interest Given that consumers, if not finance for immediate gratification over long-term Projection bias – People expect their current professionals, may be susceptible to the gain); loss aversion; overconfidence; attitudes and preferences to continue in the odd cognitive slip-up, the FCA is becoming and framing. future and underestimate how these may increasingly aware and concerned that unscrupulous wealth managers may be Another is over-extrapolation, where change. As a result, they may not save enough using the results of Kahneman, and many people make predictions about the future for the future or may end up paying too much of his colleagues in academia, to exploit based on only a few observations, thus for financial products. their customers through questionable underestimating uncertainty. For instance, Rules of thumb – People boil down complex business models, like those that instil too over-extrapolation may lead a customer decisions by using ‘heuristics’ such as much confidence in their customers. To to assess financial advice positively on the choosing the most familiar option, avoiding this end, its first Occasional Paper has been basis of a few successful investments, the most ambiguous and sticking to the status devoted to the theme Applying Behavioural Economics at the Financial Conduct Authority, which in fact may have been the result of quo. Firms may exploit this by guiding people and signals the authority’s intent to treat the pure luck. According to the FCA, firms may towards certain products. subject more seriously in its oversight of firms. In the paper’s foreword, ➳

13 coverxxxx story

Martin Wheatley, CEO of the FCA, states: trust in certain brands and website design; if “Behavioural economics enables regulators to customers want to make quick decisions, they intervene in markets more effectively, and in may end up being ‘directed’ towards a more new ways, to counter such business models expensive course. and secure better outcomes for consumers.” To many people, including Sydenham More regulation and Neil, this statement is to be read as an How far the FCA will eventually go in opening salvo. Given the failures of its regulating the industry is a moot point. predecessor, the FSA, in focusing primarily At barely more than 100 days old, it is too on the disclosure of financial information soon, says Andrews, to say how exactly it rather than the psychological factors at play will design regulation and then act. More when products are sold, the FCA is keen to fundamentally, however, there remain some take a more radical approach. concerns in the industry that the regulator “Historically, the FSA’s position was to may be instilling a culture of placing too shy away from behavioural issues and to much responsibility on the shoulders of require disclosures broadly in line with finance professionals in the event of poor the homo economicus model,” says Peter investment decisions being made. Andrews MCSI, Chief Economist at the FCA. “The Occasional Paper throws a great many “One of the things that Martin Wheatley balls in the air by asking a lot of questions has done is to say ‘this is not realistic’. Smart Given the failures of its and giving examples of abuse of people by regulation needs us to be realistic about the predecessor, the FCA is those who exploit the public’s biases,” says demand side.” Neil. “The FCA’s inevitable conclusion is Part of that realism lies in recognising that keen to take a more more regulation. A cynic might say it is the not only do customers make mistakes, but radical approach stupidity of people that should be outlawed.” that financial services firms might seek to Neil points to the insurance industry to exploit those failings. The FCA has therefore illustrate his point. “What contributes to the started to conduct some of its own research less charges and certain costs not included insurance industry’s profitability is people’s into behavioural economics, by identifying in charges, and plus or minus a tracking overestimation of the likelihood of their the types of exploitative business models that error. According to the FCA, the level of these house burning down. We will gladly pay operate in the market and, in its Occasional charges is not systematically related to the large sums annually to insure against it – Paper, has indicated ten areas of initial level of costs that lie outside of the charges, many times the sum that economic theory concern (see, The FCA and behavioural and the expected value of the tracking error would indicate we should, given the remote finance, on page 13). is around zero. possibility of this disaster. Yet few would sleep “Firms are already aware of how consumers Andrews continues: “If consumers were comfortably without cover and people are actually behave because they have close acting rationally, they would always choose happy to pay through the nose for it.” contact on a day-to-day basis,” says Andrews. the tracker fund with the lowest charges. Another question being asked is whether “Some of the most sophisticated business But actually they don’t. Some choose funds the FCA is in a position to decide what models use randomised control trials to with very large fees – almost as large as products best suit an investor’s own interests find out what is the best way of setting up a active funds. It’s really hard to see what – a concern that applies more broadly to the website – from the firm’s perspective – given dimension of quality could rationalise ‘paternalistic’ approach of the Government’s the ways consumers will react according to choosing an expensive tracker fund over a Behavioural Insights Team, which is known different stimuli presented.” cheaper alternative.” more popularly as the Nudge Unit. A case in point is the issue of tracker funds, Explanations for such irrationality in the “The FCA has indicated it won’t get into which provide a return based on an index, face of mathematical logic include misplaced product approval, but it will certainly look at product design,” explains Sydenham. As suggested by Wheatley, the regulator is keen to look more closely at business models, The Government’s Nudge Unit and will ask whether specific businesses are designed to cause an unacceptable level of The Government’s Behavioural Insights Team (BIT) – better known as the Nudge Unit – was set consumer detriment. This is a point taken up by Andrews: “We up in 2010 with the remit, according to its spokesperson, to apply “insights from academic don’t want to supplant people’s preferences research in behavioural economics and psychology to public policy and services” and to “find with the FCA’s. Rather, we think that the ways of encouraging, supporting and enabling people to make better choices for themselves”. choices people are making in real markets In less formal terms, this means ‘nudging’ people to make choices that are in their best probably don’t accord with their own interests, in areas as diverse as car tax, the justice system and loft insulation. preferences if they were in possession of all Critics of nudging, however, argue that this approach opens the door for governments to act in the facts and had a good understanding of the ways that are too paternalistic. implications of their actions.” “We don’t think we know best what’s in a person’s interest,” continues the BIT’s Want to find out more about behavioural finance? spokesperson. “However, we do know that how a choice is structured affects what people do, The CISI is pleased to offer both a one-day training and that in many instances, relatively simple changes to the way that these choices are course and a Professional Refresher elearning structured can help people make important decisions that are in their own self-interest. A good module on the topic. See cisi.org/courses and example is the new system for automatically enrolling people in to pension schemes. The cisi.org/refresher for more information Government is, in this instance, making it easier for people to save for their retirement without reducing any previously available choice.” The CISI is also running ‘Behavioural Economics: the FCA and You and Your Clients’ on 15 October, held by Trevor Neil MCSI, Director, Beta Group

14 September 2013 cisi.org

a common public complaint is that reckless bankers were not punished for the 2008 financial crisis. At the heart of this failure, The current regime for approving holders of key many law-makers feel, was a flawed approved banking positions has been severely criticised by the persons regime – a mechanism designed to ensure that regulators could properly vet key Parliamentary Commission on Banking Standards. What financial professionals for competence, are the problems, and how can the system be improved integrity and financial soundness. in future? Chris Alkan reports In June 2013, the Parliamentary Commission on Banking Standards (PCBS), after nearly a year of asking those involved many questions, concluded in its report, Changing Banking for Good, that “too many bankers… have operated in an environment of insufficient personal responsibility”. The approved persons regime, meanwhile, was Status condemned as “a complex and confused mess” that gave an “illusion of regulatory control” while failing to deter wrongdoers. Instead of reforming it, the PCBS’s 571-page approved report favoured scrapping it and starting from scratch. However, some lawyers worry that the new system, although far from finalised, will take personal responsibility too far – reversing the burden of proof and forcing key employees of failed banks to demonstrate their innocence. The key test of the new regime will be whether it protects the public from irresponsible banking without compromising the right of bankers to justice.

Significant influence The current approved persons system, enshrined in regulation under the Financial Services and Markets Act 2000, applies to two groups of bank employees: senior staff, who carry out ‘significant influence functions’, such as chief executives, non-executive directors, and those overseeing systems, controls and compliance; and staff with a ‘customer-dealing function’ who advise clients in a manner substantially connected with a regulated activity. For staff to be approved, they must be assessed as ‘fit and proper’ by either the Prudential Regulation Authority or the Financial Conduct Authority (FCA), which judge fitness in several areas. Most notably, these are: (i) honesty, integrity and reputation; (ii) competence and capability; and (iii) financial soundness. Approved persons are subject to enforcement actions by the regulator, and may receive fines or removal of approved status for any wrong-doing. In practice, according to the PCBS, redress on senior staff is “as rare as hens’ teeth”. As Andy Haldane, Executive Director for Financial Stability at the Bank of England, has suggested, “the sanctions are never imposed. Everyone is ‘fit and proper’ all of the time.” Some critics – including the PCBS – have

suggested that the system fails to ensure Getty Photo:

16 September 2013 cisi.org

approved persons

that individual responsibilities are adequately to offset taxpayers’ contributions, and the itself an organ of the FCA. Only following an defined, thereby restricting regulators’ public mood reflects this.” appeal would the individual’s culpability be ability to take enforcement action. determined by a tribunal independent of the As suggested in the PCBS report, the The new system regulator.” That appears to be a politically process “operates mostly as an initial gateway The system being proposed by the PCBS, and driven reaction to the last financial crisis, he to taking up a post, rather than serving as a broadly endorsed by the Government, has adds. “While individual accountability at a system through which the regulators can several new features. The first is a senior senior level is clearly desirable, reversing the ensure the continuing exercise of individual persons regime, which would vet the most burden of proof crosses the line for me. It is responsibility at the most senior levels senior executives at a bank – such as the unjust and people may query whether it is within banks”. chairman, chief executive, finance director born of an instinct for revenge.” Events during the financial crisis, and and head of risk – with the goal being to make There would also be a new criminal offence since, have highlighted other flaws in the it easier to see which people were responsible of reckless misconduct in the management of approval system. for failures. “The expectation would be that a bank. As a criminal offence, the burden of Some criticisms suggest that not all the firm would map out people with proof would be on the prosecution. Certainly, approved persons had the right background significant responsibilities, who could be unless this new offence is carefully defined, it or qualifications for the jobs that they identified if regulators wanted to take actions risks undermining the rights of bankers. Prior performed. Critics remarked that Fred against individuals,” explains Paul Chisnall, to the financial crisis, bank chiefs were often Goodwin, who as Chief Executive presided Executive Director of the BBA. “This would egged on by shareholders to pursue ambitious over the collapse of , create an HR trail that regulators could trace returns on equity, and that inevitably involved had no technical bank training or formal for clearer lines of accountability.” taking bolder risks. banking qualifications. In retrospect, his This scheme would be backed up by a new “The line between poor business judgment background as an aggressive deal-maker statement of banking standards. The current and reckless criminal misconduct may be made him a poor choice to head a retail hard to draw, but will inevitably be judged bank – though few complained when RBS with hindsight,” says Ben Kingsley, a partner was riding high. The number of people whom at Slaughter and May. During the financial “Not all key activities within a bank the FSA had to approve crisis, for example, many banks took what were covered by the system,” points out might now be characterised as daredevil risks. Christopher Bond, Chartered MSCI, Senior strained its capacity – Fred Goodwin was named Forbes Adviser at the CISI. “For example, the people Businessman of the Year in 2002. At the time, submitting the rates for the London Interbank especially its IT system his willingness to make big bets was not Borrowing Rate were not approved persons.” considered a liability. Yet the rigging of the rate compromised the regulator’s Statements of Principle for the Of course, the replacement for the approved reputation of the banking industry and industry, which date back to the 1990s, focus persons regime has not yet been pinned down. resulted in a $453m fine for . In on the behaviour of the company rather than Although the Treasury has welcomed the addition, Bond says, certain crucial mid-office the individual. “This is expected to be recommendations of the PCBS, it has not yet and back-office functions, such as risk, redrawn to put the focus squarely on the published the required draft legislation and were left out. individual,” says Chisnall. However, it is the it still remains for the regulators to turn The PCBS also criticised the system because enforcement of this new regime that many them into more detailed plans. Once they it did not monitor approved persons after they lawyers believe may go too far. The Treasury have done so, the industry will have an were initially hired – only on job entry. has suggested broad rules under which the opportunity to suggest changes and debate On the other hand, the number of people onus would be on individuals to demonstrate the proposals. The industry may succeed in whom the FSA had to approve strained that they took all reasonable steps to prevent toning down parts of the planned new system its capacity. At the last count, 156,000 a breach of them. that trouble managers and lawyers. The hope individuals from across financial services This has several serious drawbacks, must be that holding bankers to account does were considered to be approved persons, according to Greg Brandman, a partner at not come at the cost of compromising their according to data published by the British Eversheds and a former manager in the FSA’s legal rights. Bankers’ Association (BBA). Enforcement and Financial Crime Division. “This put a strain on its IT system, which “The first concern is that reversing the burden was unable to cope – especially as individuals of proof around individual culpability would The current regime for moved from one firm to another,” says Bond. make London a less attractive place to work An additional problem was that and therefore potentially harm the City as a approved persons disciplining individuals for reckless financial centre relative to rivals like behaviour was difficult. With the sole Frankfurt,” he says. “Merely working in a Number of bank employees in the UK: 450,000 exception of Peter Cummings, an HBOS senior role in London would expose Approved persons from across all financial executive who was fined £500,000 by the individuals to far greater risks.” services: 156,000 FSA for failing to “exercise due skill, care Equally important, however, is the matter of Bank employees in the approved persons and diligence”, the top brass at failed banks justice, lawyers argue. “It is simply unjust to were not held to account by regulators. require somebody to prove their innocence. It regime: 26,575 “There was a veil of collective responsibility has to be for the regulator to show that the Of which, holders of significant influence that was hard to penetrate,” says Bond. individual has been at fault,” Brandman says. functions: 1,180 “The worst that happened was that bankers “It is important to bear in mind that the first Of which, holders of customer-dealing lost their jobs. We did not see large-scale panel deciding on these disciplinary cases (the functions: 25,395 claw-backs of bonuses or pension reductions Regulatory Decisions Committee or RDC) is

17 A distinguished civil servant with a keen interest in security issues, Sir GCB speaks to Rob Haynes about risk and the virtues of online protection Safety first

when he confesses that his idea of However, it is a different concept of counter-terrorism strategy and national relaxation is distinctly Calvinist, you get the risk – one connected inextricably with security, and was the UK Government’s Chief idea that Sir David Omand GCB is not an idle national security – that best describes Sir Crisis Manager for Civil Contingencies. retiree. Having given up full-time employment David’s professional endeavours, his role at in 2005, following a career that glittered the centre of government and the subjects he Battling cyber crime brightest during spells heading up the Cabinet pursues in retirement. “Working in the Ministry of Defence on Office, the Home Office and GCHQ – the UK’s “After having graduated from Cambridge national security issues gave me insights main signals intelligence agency – Sir David with a degree in economics, I joined GCHQ, into the new threats that were emerging chose study as a useful means of spending his then a highly secret organisation, but now after the Cold War.” Prime among these, extra time. “I found it very relaxing,” he says well known as both the UK’s signals Sir David says, is the issue of cyber security – of the experience, which involved studying for intelligence agency and also the UK “a fascinating subject that combines advanced a degree in mathematics and theoretical Government’s centre of technical expertise mathematics with an understanding of the physics at the Open University. “And I now in cyber security.” He subsequently served psychology of human behaviour”. know more of what the quants in the City are as the first UK Security and Intelligence It is a theme that proves more relevant in up to with their ever more sophisticated risk Co-ordinator, responsible for the professional today’s world of international terrorism and models – and how they came unstuck in 2008!” health of the intelligence community, national the proliferation of the internet into many

CV snapshot 2007 – Gains a first class degree with the Open University in mathematics and theoretical physics 2006 – Joins the War Studies Department of King’s College London as Visiting Professor 2004 – Appointed Knight Grand Cross of the (GCB) 2002–2005 – Becomes UK Security and Intelligence Co-ordinator and Cabinet Office 2000 – Appointed Knight Commander of the Order of the Bath (KCB) 1997–2000 – Becomes Permanent Secretary at the Home Office 1996–1997 – Becomes Director of GCHQ 1993–1996 – Becomes Deputy Under Secretary of State for Policy at the Ministry of Defence 1969 Graduates from Cambridge University with a First in economics and joins GCHQ 1947 Born Glasgow, Scotland Photo: A.exander McIntyre A.exander Photo:

18 September 2013 cisi.org

profile: sir david omand gcb

areas of daily life, and one that bears just a activities, but now we see them being carried little relevance to finance. Of the risks posed out in cyberspace. “The dominant to financial services firms, he says: “Cyber characteristic of cyberspace is that it shrinks Should the City crime is huge and rising, often facilitated by distance – attacks can come from anywhere encourage an insider, something HR departments and on the globe, and they do – and it shrinks managers need to be alert to.” time – it takes less than 150 milliseconds for whistle-blowers? Despite his words of caution, Sir David the effect of a button pressed on a keyboard in is an optimist about taking on the cyber China to hit the network of a City firm. And Given the threats to what Sir David calls criminals, and the opportunities that a firm’s ‘information crown jewels’, he robustness present for the UK. “I would start believes that whistle-blowing remains with the opportunity, not the threat. We have Sir David is an optimist an important exercise that should be the chance, if government and the private about taking on the cyber encouraged in the right circumstances. sector work together, to make the UK one of He says: “Genuine whistle-blowers are the safest places in the world to do business in criminals and sees the an age of cyber.” Providing excellent security, protected in the UK by law (the Public Sir David believes, can be a positive product threat as an opportunity Interest Disclosure Act 1998) because discriminator for the UK. “We already are the they perform a social function in exposing leading global financial sector in terms of cyberspace makes it easy for the attacker to suspected wrong-doing. But genuine innovation in professional services – but we hide their tracks.” whistle-blowers go to the top of their have to show that in this area, as in so many However, Sir David is far from an advocate organisation, such as the senior others, we can keep our and our clients’ of authoritarian online rule, even at a time independent director, or to the regulators secrets and money safe.” when revelations about the co-operation of With more than a nod to his own feelings GCHQ with its American allies have made or to the police so that suspicions can about those who exploit cyber security, Sir front page news. He believes in a liberty – in be properly investigated and the true facts David has coined the acronym, CESSPIT, to the vein of 20th-century British philosopher established and if necessary evidence remind us of the dangers: Crime, Espionage, Sir Isaiah Berlin – where people are free gathered before it is all over the media. Sabotage and Subversion Perverting from threats, rather than simply free to do Genuine whistle-blowers want to see Innovations in Technology – all threats to whatever they wish, and explores these ideas impartial investigation and things put our economic and social well-being. in his book, Securing the State, described right, not trial by media that is liable These, he sees, are very traditional human by Professor Michael Clarke, Director General of the Royal United Services Institute, as unnecessarily and sometimes quite unfairly “a masterly account of both the principles and to damage the organisation they work the practice of good intelligence”. In the book, for and therefore harm the interests of Sir David argues for a conceptual rethink of all the staff. We can all think of leakers nationhood – away from the secret state to the who are personally or ideologically protecting state. motivated and out to wreak havoc with the maximum publicity.” Sharpening the mind If Berlin’s ideas sum up Sir David’s leanings on liberty, we should perhaps look to Berlin’s essay, The Hedgehog and the Fox, for a When he became the UK Security and description of his intellectual approach. Intelligence Co-ordinator as part of his Thinkers, Berlin lightheartedly suggested, role as Permanent Secretary at the Cabinet fall into one of two categories: foxes, who Office in 2002, his department could already know a little about a great number of subjects; see the wider problem that cyber security and hedgehogs, who study one or two themes poses, that the protection and resilience but at greater depth. Given his dedication to of the country’s critical national infrastructure issues of security and risk, whether from a would become a key national priority. In mathematical or psychological perspective, Sir David’s view the world is yet to witness you could be forgiven for thinking that a cyber war, but he does concede that one is Sir David is not a fox. getting closer. “Something changed over Warfare, and its academic study, now the last year with (almost certainly originating preoccupies much of Sir David’s time, which from Iran) a cyber attack on Aramco, he spends as a Visiting Professor in the War which supplies around one-tenth of the Studies Department at King’s College London, world’s oil, that destroyed or compromised which lists among his areas of expertise the around 30,000 of their computers and historical development of the UK intelligence 2,000 servers.” community. His particular foray has been He also cites attacks on the IT systems of studying these subjects from a strategic Qatar’s RasGas, a natural-gas company, and perspective – a pleasure that “sharpens one’s on some 50 American financial institutions mind”, he says, in a way you rarely find – all relatively simple attacks that will in time for in service when preoccupied with future be replaced by more sophisticated actually managing the issues of the moment. ones. “We need to be ready.” (This mind is also sharpened through his involvement, since 2009, with defence For more on cyber crime, the CISI is launching a specialists Babcock, where he serves as Senior Professional Refresher elearning module on Independent Director.) cyber crime. See cisi.org/refresher

19 In the coffers Five years after the collapse of Lehman Brothers and the onset of the financial crisis, are banks’ capital adequacy rules strict enough? In the first part of the S&IR’s focus on the industry’s response, Dan Barnes finds fault with the new regulations

if you cut a cross-section through a longbow you will see layers of wood. Some are harder, some are softer, and their different proportions determine how much flex the bow can take and how quickly it will straighten when it is bent and released. The assets that a bank holds serve a similar function. Whether they are flexible or rigid, weak or strong, and the proportion of each, determine the bank’s characteristics in coping with market circumstances. Following the onset of the financial crisis with the collapse of Lehman Brothers in September 2008, international authorities decided to try and strengthen banks against future shocks by increasing their capital adequacy ratios (CARs), which provide a measure of resilience. The CAR is calculated by dividing the sum of the bank’s tier-1 and tier-2 capital by the bank’s risk-weighted assets (see box, right). The international Basel Committee on Banking Supervision (BCBS) sets the CAR and other ratios that dictate the capital adequacy banks must adhere to. These are fixed under the Basel Accords, which are agreed between the BCBS’s member countries. The third version of the Basel Accord’s capital rules was proposed in June 2011, although not without controversy. “It would be far better if the banks had a much higher ratio of equity to debt,” says Professor Charles Goodhart, Director of the Financial Regulation Research Programme at the London School of Economics. “The banks would be far safer.” “[Regulators must] look before [they] leap and think what other consequences might arise,” says David Green, a consultant and author on central banking and financial regulation. “The most important one is that if there is a desire to make banks absolutely bomb proof, then this comes at a price.” In the run up to the financial crisis, the CAR was seen to decline in firms that eventually failed. For example, Lehman Brothers saw a drop in CAR from 9.9%

in 2003 to 7.3% in 2007. A European Getty Image:

20 September 2013 cisi.org

capital adequacy

Commission memo, dated 16 July 2013, that of the top 16 European banks, with an observed that the difference between average of 3.61%, in the shade. There are Tiers for fears firms that failed and those that did not moves in the US to raise the leverage ratio. came down to “the quality and the level “EU banks are more highly levered on Europe, Asia and the US employ different of the capital base, the availability of the average, but the argument that the EU is criteria for what should be included in the capital base, liquidity management and massively over-levered compared with the two main tiers of capital. The Bank for the effectiveness of their internal and US is not straightforward,” says Haben. International Settlements (BIS) offers a corporate governance”. The structural system in the US allows comprehensive breakdown of how banks banks to shift their mortgages off their should treat each tier, within the following A measure of success in Europe balance sheets and keep them with Fannie broad framework: The BCBS has recommended under Basel III Mae and Freddie Mac – government-backed that, by 2015, a bank should hold 8.5% of tier-1 bodies that support US mortgage lenders. Common equity tier-1 capital – funds raised capital (including a 2.5% buffer) and, if “Mortgages tend to be low risk and if you in such a way that they can be used to absorb required by the national regulator, a further take those off your balance sheet, you change losses without hurting the bank’s operations, 2.5%. Basel II had previously stipulated 4% your leverage ratios, although not your risk such as equity and undistributed profits of tier-1 capital. profile very much,” says Haben. “In addition, Tier-1 capital – the sum of common equity The European Banking Authority (EBA), the way the US accounting system works is tier-1 and additional tier-1 capital, which includes transposing Basel III via Capital different to those of the International national regulatory adjustments Requirements Directive IV and the Capital Accounting Standards Board.” Tier-2 capital – funds that will absorb Requirements Regulation, has set the A recent study by the Federal Deposit losses only if the bank is collapsing, such as minimum core tier-1 at 9%. Piers Haben, Insurance Corporation, the US’s bank- undisclosed reserves and hybrid instruments Deputy Secretary General at the EBA, says guarantee scheme, found that the top eight that for the 61 largest banks that the EBA US banks had a leverage ratio of 3.88% when tracks, which account for a majority of assets calculated under International Financial To read the BIS’s proposals, visit in the EU, the average core tier-1 ratio was Reporting Standards. tinyurl.com/bcbs212 11% at the end of 2012, although some held less than 9%. In the US, the same measure for Across the board banks was 11.3%. That is also higher than the Even if the regional inconsistencies are 6% average for tier-1 capital, a broader pushed to one side, there are reasons to be That, says Goodhart, “is hideously category, which Japanese banks had achieved worried about the broader regulation, says counterproductive to a recovery in the by 2000, having recovered from the Asian Professor Goodhart. health of the world’s economy”. crisis of 1997–98. “The present [proposed] minimum “Are current capital levels enough to give leverage ratio, the equity-to-debt ratio, at 3% A dangerous method confidence to investors?” asks Haben. “If you is insufficient if there should be a significant There are also question marks over the would say they are in the US, then I would downturn in the value of certain assets that methods used by banks to calculate their say they are here. And these are very the banks hold. The amount of equity that the ratios. Michael Symonds, a credit analyst favourable comparisons to what we see in banks hold is, in most people’s view, not at broker Daiwa, notes that public Asia and elsewhere.” sufficient to maintain stability.” disclosure of the leverage ratio, a requirement Selwyn Blair-Ford, Head of Global The problem is not the agreement of the under the proposals for Basel III, has Regulatory Policy at financial services amount of equity capital a bank should hold, become the norm for European banks compliance advisory firm Wolters Kluwer, he asserts, but rather how the bank should over the last quarter, which has led to it also raises concerns that the acceptance of arrive at the correct level. garnering attention among market certain assets, including joint stock and “There is no enthusiasm in any bank for participants and investors. capital from mutual or co-operative firms, as raising more equity, because to do so at a time “My view is that excessive reliance on a components of capital categories in Europe, is leverage ratio is imprudent, but that the not mirrored elsewhere, undermining focus of regulators should be on the Europe’s efforts somewhat. When banks have to raise consistent application of asset risk weights “I am concerned that Europe has a more equity ratios, they typically in calculating regular capital ratios,” he says. flexible way of defining what constitutes tier-1 A recent study by the EBA found that and tier-2 capital than other jurisdictions,” cut back on their assets the measurement of risk-weighted assets he says. “Europe is so insular in its delivery by European banks was inconsistent, of Basel III that it does not seem motivated to when the market price of equity is low is to which may imply that their ratios are bring the definition of capital up to the same dilute the overall return on equity for existing also inconsistent. Haben says that work standard as banks in Japan and Singapore, stock holders,” Goodhart says. “CEOs hold a by the BCBS on a global scale found similar for example. That means that even with lot of equity themselves and are responsible issues. The EBA plans to address some the same capital ratios, the banks in to their shareholders, who, if annoyed, might of those discrepancies by improving Singapore and Japan will look a safer bet boot them out. That means they are not going transparency, allowing an observer to than European institutions.” to raise new equity except under extreme better scrutinise portfolios of assets. More broadly, there are concerns around pressure, such as the Prudential Regulation In the meantime, investors would do well the leverage ratio – the proportion of tier-1 Authority and Bank of England were to be cautious over the figures they read and capital divided by the bank’s total assets (or exerting on Barclays until recently.” not compare apples with oranges. equity to debt) – which has been set at a As a consequence, when banks are minimum of 3% by the BCBS. The top eight asked to raise leverage ratios, they The second part of the S&IR’s coverage of the US banks have an average leverage ratio of typically do so by cutting back on assets, post-Lehman’s landscape will feature in the 6.17%, which at first glance appears to put which is a process known as deleveraging. October edition

21 In June 2013, the United Arab Emirates (UAE) and Qatar indices were upgraded from frontier to emerging-market status. Nigel Sillitoe takes a peek at likely changes in the region CHANGE of FORTUNE

the decision by MSCI to elevate the UAE investment flows that will come to the two and Qatar indices to its ‘universe’ of emerging markets, about one-quarter expect that the markets, with effect from May 2014, is viewed amount will exceed $1bn annually. Another in the Gulf region as a positive development. 23% believe that the amount will be between As investment managers and their clients seek $500m and $1bn per annum. sources of greater return, such ‘promotions’ are closely watched in the main financial Which asset managers will be the winners? centres. But how do market participants in the There is a diversity of views as to which asset region perceive the developments? management companies will benefit most from A study gauging the sentiments of 141 the UAE and Qatar indices moving up the investors and other market participants, pecking order. Some 58% of survey predominantly based in the UAE, shows near respondents believe that the main beneficiaries unanimity that the upgrade will boost inflows will be international asset management of funds to the two markets. In fact, the companies that have a local presence in the research, carried out by Insight Discovery and Gulf Co-operation Council (GCC) countries – Zawya, shows that only 4% of respondents Saudi Arabia, Kuwait, the UAE, Qatar, Bahrain think that this will not be the case. and Oman – and which offer regional funds. Although 28% of survey respondents believe Another 33% identify local or regional asset that it is too early to quantify the incremental management companies. The remaining 9% think that the main winners will be international asset management companies What impresses MSCI that do not have a regional presence, but which can offer regional funds. MSCI factfile about the UAE and Qatar? So who is next? In 1988, MSCI launched the first UAE Some 36% of survey respondents identified comprehensive Emerging Markets Index. • Improvements made by the Security and Kuwait as the regional market most likely Since then, the emerging-market indices have Commodities Authority, the Dubai to be next elevated by MSCI to emerging- evolved considerably, moving from about Financial Market and the Abu Dhabi market status. Almost as many, 35%, say 1% of the global equity opportunity set in 1988 that this is true of Oman. Others identified Securities Exchange with respect to the to 13% in 2012. delivery versus payment model Jordan (14%), Bahrain (11%) and Lebanon (4%) (see chart, Which GCC countries will be next to The indices cover more than 2,700 • introduction of a proper false trade be elevated to emerging-market status?, right). securities in 23 markets that are currently mechanism on both exchanges More than 80% of those taking part in classified as emerging-market countries. • new regulations governing stock the research think that the decision in MSCI regularly reviews the market lending/borrowing relation to the UAE and Qatar will accelerate classification of all countries included (or • most market participants express no the reclassification of Saudi Arabia’s under consideration for inclusion) in its Tadawul stock exchange. major concern over safekeeping of global equity universe, based on extensive investors’ assets and are starting to move A risk factor discussions with the investment community. away from the dual-account structure. A final survey question highlights a potential Using the MSCI Market Classification Qatar risk. When asked whether they foresee an Framework, it examines each country’s • Commitment by the Qatar Government to asset price bubble in any GCC market over the economic development, size, liquidity and increase foreign ownership limits (FOLs) next three-to-five years, arising from the MSCI market accessibility in order to classify it • several companies have asked the Qatar upgrade, 48% replied in the affirmative. in a given investment ‘universe’. Each June, Exchange to use total market capitalisation MSCI communicates its conclusions on the rather than free-float market capitalisation, Nigel Sillitoe is Chief Executive Officer of Insight Discovery, list of countries under review and announces which will boost effective FOLs. The MSCI based in Dubai the new list of countries, if any, under review argues that the Qatar Government should for potential market reclassification in the lift FOLs to above 25%. upcoming cycle.

22 September 2013 cisi.org

continuing professional development

Russia’s eastern promise

Like the Gulf states, mighty Russia sees the growth and development across all sectors of advantage of promotion through the country the economy. classification ranks. Under the FTSE scheme, it In 2010, the Russian Government set up the is at present classed as ‘secondary emerging’. Moscow International Financial Centre (MIFC) The FTSE criteria cover six key areas: World initiative to lead this project and to ensure that Bank gross national income per rating, international co-operation was at the forefront. which in Russia’s case is ‘upper middle’; Following discussions with the Lord Mayor, the creditworthiness, currently at ‘investment grade’; MIFC formed a strategic relationship with the market and regulatory environment; custody and . settlement; dealing landscape; and whether or not Significant progress has been made through there is a developed derivatives market. the legislature and market development in the The table below indicates the key criteria in the securities and derivatives stream. The education, custody and settlement area. Overall, Russia is training and qualifications stream, led by the CISI advancing strongly. Since 2011, the number of red on behalf of a group of major UK professional ‘Not Mets’ have declined, and the number of green bodies, is also making good progress with its ‘pass’ ratings have increased. In recent years, the ten-point plan. Russian Government has been putting increased George Littlejohn MCSI, emphasis on the growth of its financial services Senior Adviser at the CISI industry. There is a particular focus on how the industry can play a greater role in offering diverse and innovative ways to put Russia’s natural-resource wealth to work to drive

Custody and settlement The positive result of the March 2013 FTSE Country Classification with the

Photo: Getty Photo: advancement of the Russian market

Which GCC countries will be next to be DEV = Developed, ADV EMG = Advance emerging, 2ND EMG = Secondary emerging, FRT = Frontier elevated to emerging-market status? Criteria DEV ADV 2013 2012 2011 2010 2nd FRT 4% EMG EMG Settlement – Rare incidence X X Pass Pass Pass Pass X X 11% of failed trades

36% 14% Custody – Sufficient X X Restricted Restricted Restricted Pass X competition to ensure high quality custodian services

Clearing and settlement X X Restricted Restricted Restricted T+7 X X – T+3, T+5 for Frontier T+4 T+4 T+4

35% Stock lending is permitted X Not Met Not Met Not Met Not Met

Settlement – Free delivery X Pass Restricted Not Met Not Met Kuwait available Oman Lebanon Custody – Omnibus account X X Pass Restricted Not Met Not Met facilities available to Bahrain international investors Jordan

Source: Insight Discovery/Zawya Source: FTSE Country Classification Committee, March 2013

23 A bank’s non-executive director may have coerced an employee into providing off-the-record services for his own firm’s benefit. How would you deal with the situation? Personal FAVOURS

fiona reet is a director of growing private Acorns had all the necessary authorisations bank Newclea, which employs more than 250 signed by the mutual customers, but the delay people across a number of departments. Fiona in receiving replies from Newclea (for which is reading over her papers in preparation for a his firm had paid a fee) meant Acorns was routine audit committee meeting when her unable to complete the necessary credit checks colleague Jessica Adams knocks on the door. on time and lost business as a result. Michael Jessica is a highly regarded senior manager raised this matter following a board meeting who often works late, generally leaving well and he understood that the Chairman later after her colleagues. In the past, Fiona has asked Jessica to resolve the problem. checked that Jessica is not under too much Michael reports that Jessica was extremely pressure and she has cheerfully replied that helpful. Indeed, he was so impressed that he she is just catching up. wrote to the Chairman praising Jessica for Fiona has a great deal of professional her diligence. respect for Jessica as she has been with the Some weeks later, further delays arose in bank for more than ten years and always Acorns’ credit-check process with Newclea makes a positive impression on clients. and Michael phoned Jessica to ask for her help Newclea has received more positive comments once again. Explaining to Michael that she had about her than any other member of the team. After the meeting, one of the non-executive directors, Michael Synthetic, asks to see Fiona Michael is uncharacteristically nervous when he meets and suggests a discussion in her office. Michael, who has been a non-executive Fiona, telling her that he wants to formalise a private director of Newclea for five years, moved jobs a few months ago. He now runs a large finance arrangement he has with Newclea company, LargeS, that specialises in providing point-of-sale finance for a group of consumer been on holiday, Jessica volunteered to act as negotiate a discounted rate for the ‘express’ electronics stores. Acorns’ point of contact and told him he could service status enquiries. He is also keen that LargeS has a reputation for offering a fast rely on her to oversee status enquiries. the private arrangement between Wendy at service and financing big-ticket items at the Michael tells Fiona he believes he deserved Acorns and Jessica should be formalised. top end of the retail market. Fiona is aware this level of service as a customer – whether he Concerned by Michael’s revelations, Fiona that some of Newclea’s customers have was a director of the bank or not. later meets with Jessica and asks her about the financial dealings with LargeS. Michael explains to Fiona that he arranged ‘arrangement’. Jessica says that she has been Michael is uncharacteristically nervous for his colleague Wendy to be Acorns’ point helping Michael’s former firm Acorns for a when he meets Fiona, telling her that he wants of contact with Jessica and was no longer couple of years since being asked to do so by to formalise a private arrangement he has with directly involved after this stage. Before the Chairman. When Fiona expresses surprise Newclea. Seeing Fiona’s concerned look, he leaving Acorns, he became aware that Jessica that the Chairman would have said anything quickly reassures her that it is a relatively and Wendy had struck up a friendship and directly, Jessica admits that he hadn’t actually small matter. were corresponding frequently, up to several asked her specifically to provide Michael or his He explains that, several years ago, he times a day – with Jessica almost always firm with special arrangements. However, she worked for Acorns – a firm similar to LargeS. replying to Wendy’s emails at the end of the decided herself ‘to go the extra mile’ to provide During his time at Acorns, he experienced working day. exemplary service to Acorns. delays in obtaining answers to routine However, having now moved to LargeS, Jessica says that, as a result of the initial status enquiries on the creditworthiness of the requirement for status enquiries is problems with Acorns’ status enquiries, she Newclea’s customers. significantly greater and Michael wants to built up a relationship with Wendy that she

24 September 2013 cisi.org

grey matters

Mixed messages THE VERDICT Bill, an employee of an asset management firm, is liberal in his comments on Facebook about the shortcomings of his company’s senior management team. His remarks are distributed on the social media site to a small circle of ‘friends’, including Bill’s cousin Greg, who is poised to join the firm, and Sam, another employee who knows Bill’s boss Howard well. Sam reports these remarks to Howard and to Pandora in HR, who is also concerned about the possible impact on Greg. The firm has recently instituted a new social media policy, which will now be tested.

This was the dilemma that appeared in the June edition of the S&IR. Readers were invited to vote in a poll on the CISI website on the course of action Howard and Pandora should take.

The CISI response Of the four courses of action offered, more than two-thirds of respondents suggested that Bill should simply be warned and Greg should still be hired – with company policies reinforced to both of them. Given the relative newness of the firm’s policy, its untested status and the private nature of the communication, this gentle response is understandable. Greg has not contravened any company guidance and is not even an employee. Bill is well regarded in other respects and has not made similar transgressions in the past. However, there was a growing recognition of the potential perils around the use of social media Illustration: iStock Illustration: such as Facebook, as well as private emails. Newspapers regularly report incidents that then felt obliged to continue. She and Wendy non-executive director. She adds that she initially appear harmless, but often escalate, met for lunch a few times and, as she felt more didn’t receive any gifts or money from resulting in real damage to reputation and, on comfortable, willingly continued with the Michael, Wendy or Acorns – only an arrangement. Jessica confirms that she knew occasional, inexpensive lunch. In return, occasion, financial loss. Michael had left Acorns a few months ago and she frequently stayed late to deal with the The next most popular choices, but well she hadn’t spoken to or emailed him since the volume of status enquiries. behind the favoured option, involved disciplinary original problem years ago. action against Bill with termination of Greg’s Becoming increasingly concerned by what What course of action would you advise contract (15%) or referring the matter to the she is hearing, Fiona asks Jessica to detail her Fiona to take? compliance and legal departments (14%) – the arrangement with Wendy. Jessica tells her that 1. Respond sympathetically to Jessica. She implication being that the association with Bill she would typically receive an email titled was clearly coerced by Michael who took could somehow taint Greg or that his cousin’s ‘Asset allocation’ and would reply in the same advantage of his position, but pursue the manner. Fiona asks Jessica to show her an matter with Michael and Acorns. remarks undermine the trust between him and example, but Jessica says she always deleted 2. Sack Jessica and seek financial restitution the firm. However, formal disciplinary action may both the inward email and the reply on the from Michael and Acorns. be severe in the context of a new, untested policy grounds of ‘client confidentiality’. Jessica is 3. Sack Jessica and involve the police. largely related to a private conversation. uncharacteristically subdued when asked 4. Allow Jessica to resign and sever the Only two readers felt that Bill’s employment why the email was headed with such a connection with Michael. Amend your should be terminated – the most extreme view, misleading subject. firm’s procedures, but decide to take no particularly given the policy is relatively new and Finally, Fiona asks Jessica whether she external action since it would be bad for the exchanges took place outside the office. appreciates that the income lost to the bank your firm’s reputation. would have been more than sufficient to pay In this case, we concur with the majority in our her salary. At this point, Jessica bursts into Visit cisi.org/personalfavours to let us know your preferred course of action. In future, however, the tears, claiming she was only following the favoured option. This, together with the opinion of vexatious realm of social media is likely to Chairman’s instructions and trying to be the CISI, will be published in the November/ command greater employer attention. helpful to an important customer and December edition of the S&IR.

25 books

TWO NEW DIPLOMA WORKBOOKS NEW WORKBOOK AND ELEARNING EDITION Investment, Risk Need Global Operations Management will help candidates understand operations and & Taxation settlement procedures in order to service the This workbook is designed to help to read operations and settlement needs of a firm candidates understand how to assess and its clients. The corresponding workbook a client’s current financial position, make The latest publications (covering exams from 6 December 2013 to suitable investment recommendations, and study aids 27 June 2014) is out now. monitor performance and respond supporting CISI appropriately to changing needs and circumstances. A new Regulation & Compliance will test candidates’ edition of the workbook and corresponding elearning product qualifications knowledge and understanding of the legal, (covering exams from 31 October 2013) is out now. regulatory and ethical framework of the UK Topics covered include: financial services industry and their ability to • asset classes and the macro-economic environment apply such knowledge and understanding in • principles of investment risk and return a practical manner. The corresponding • taxation of investors and investments workbook (covering the 3 December 2013 • investment products, planning and advice. exam sitting only) is out now. Price: £100 for combined workbook and Price: £150 (each title) elearning product

NEW WORKBOOK AND ELEARNING EDITION NEW WORKBOOK AND ELEARNING EDITION NEW WORKBOOKS AND ELEARNING EDITIONS

Fundamentals of International Regulatory titles Financial Services Introduction to New workbook and elearning editions Fundamentals of Financial Securities & (covering exams from 21 November 2013) of Services is an important first Investment the following regulatory titles are out now. step in developing the essential International Introduction to Securities basic knowledge required for & Investment provides an introduction UK Financial Regulation working in financial services. to the world of finance and the global (formerly called FSA Candidates will learn about the industry and financial services industry for candidates working Financial Regulation) – part commonly used financial products, such as outside the UK. A new edition of the CISI’s workbook of the Investment shares, bonds and insurance. and corresponding elearning product (covering exams Operations Certificate and The Ofqual-regulated qualification, which is from 10 September 2013) is out now. Certificate programmes. recognised as a level-2 award on the Topics covered include: Qualifications & Credit Framework, is ideally • the economic environment UK Regulation & suited to new or junior employees within the • financial assets and markets Professional Integrity industry. It is also appropriate for school leavers • equities (formerly called FSA who are considering a career in finance. • bonds Regulation & Professional The Fundamentals of Financial Services • derivatives Integrity) – part of the workbook and corresponding elearning product • investment funds Investment Advice Diploma (covering exams to 31 July 2015) are out now. • financial services regulation. programme.

Price: £80 for combined workbook and Price: £100 for combined workbook and Price: £100 per subject for combined elearning product elearning product workbook and elearning product

Visit cisi.org/bookshop to purchase workbooks, publications and elearning products quickly and efficiently.

ONLINE TOOL External specialists Professional Refresher New modules are added to the The CISI relies on industry practitioners to offer their knowledge and The CISI’s site on a regular basis and existing expertise to help create and maintain its exams, workbooks and elearning Professional ones are reviewed by practitioners. Refresher All modules are in line with the new products. There are several types of specialists: authors and reviewers for helps you UK regulatory environment. At the workbooks and elearning products, item (question) writers, item editors remain up end of each module, there is a test and exam panel members. All of them receive a number of benefits to to date with which will help you to determine how thank them for their involvement. regulatory developments, maintain much knowledge you have gained. There are currently around 300 external specialists who have volunteered regulatory compliance and The product currently consists of to assist the Institute’s qualifications team but more are required. demonstrate continued learning. This more than 50 modules, including popular online learning tool, now investment principles and risk, The CISI would particularly welcome applications from specialists to enhanced and updated, allows self- corporate actions and financial crime. assist with developing exams for Advanced Global Securities Operations, administered refresher testing on a Passing a Professional Refresher Advanced Operational Risk, Commodity Derivatives, Corporate Finance variety of topics, including the latest module is logged under the CISI Regulation, Derivatives (level 3 and 4), Exchange-Traded Derivatives, regulatory changes. CPD scheme. OTC Derivatives, Operational Risk and Securities (level 3).

Price: Free for all CISI members, otherwise it costs £150 per user. There To register your interest, please contact Iain Worman on +44 20 7645 0609 are also tailored module packages and a reporting management site or download the application form available via: cisi.org/externalspecialists available for individual firms. Visit cisi.org/refresher for further details.

26 September 2013 cisi.org

Diary Events to attend over the coming months ➳ Conferences CISI London Annual Dinner 10 october CISI Training & Competence Conference 2013: 28 november Plaisterers’ Hall, One London Wall, London, EC2 Shedding Light on the New T&C Regime The CISI’s premier social event of the year America Square Conference Centre, 1 America Square, Sponsor will feature as guest speaker Michael Portillo, 17 Crosswall, London, EC3 journalist, broadcaster, and former Conservative Training and competence is a top priority for the new regulator Party politician and Cabinet Minister. following the Retail Distribution Review. This conference will not only analyse the latest regulatory developments but also give practical To book: cisi.org/events +44 20 7645 0777 examples of how to implement an effective T&C scheme and provide an opportunity to benchmark with peers. London CPD events Expert speakers will include: Paul Slater FCSI, Director, Training & Competence, & Co 17 september LIBOR – the Way Ahead† Ian Porter MCSI, Head of Wealth Management, Sanlam Private America Square Conference Centre, 1 America Square, 17 Crosswall, EC3 Investments Wealth Management (UK). Colin Neil, Training & 18 september How Does Globalisation Affect Inequality?† Competence Manager, UBS Wealth Management. Clive Shelton, Museum of London, 150 London Wall, EC2 Chartered FCSI, Risk & Compliance Director, International Financial Data Services. Nicholas Walmsley, Director and Head of Compliance & 26 september Bank Strategic Asset Liability and Liquidity Risk Risk Culture Training, Deutsche Bank Management: Managing the Net Interest Margin Challenge† SWIFT, The Corn Exchange, 55 Mark Lane, EC3 Sponsors CISI members can attend this conference for just £200 (non- 3 october Sibos Outcomes† members £400). For further SWIFT, The Corn Exchange, 55 Mark Lane, EC3 details, visit cisi.org/conferences, 14 october Smart Beta: Market Cap or Monkey?† or call +44 20 7645 0777 Cass Business School, 106 Bunhill Row, EC1

CONFERENCE SPONSORSHIP For further information about London CPD events, visit cisi.org/events To consider taking up a sponsorship or exhibition opportunity at this conference, please contact Fran Murrells To book: cisi.org/events +44 20 7645 0777 on +44 20 7645 0725 or email [email protected] Branch events CISI Annual Integrity Debate 12 september The Breakup of the Defined Benefits Pension Scheme 25 september CISI Annual Integrity Debate (joint event with ACCA) Plaisterers’ Hall, One London Wall, London, EC2 Republic of Ireland: Clarion Hotel IFSC, Excise Walk, Dublin To book: cisi.org/events +44 20 7645 0777 16 september Around the World in 180 Minutes† (half-day event) Bristol & Bath: Mercure Brigstow Hotel, 5–7 Welsh Back, Bristol CPD training courses 18 september FATCA Update† Venue: London, unless otherwise stated Guernsey: The Old Government House Hotel, St Ann’s Place, St Peter Port, Guernsey 17 september NEW COURSE: The New Global Tax Transparency – Its 19 september Quiz Night Impact on Your Clients† (half day, morning) £300 Manchester & District: The Ape & Apple, 28 Dalton Street, Manchester 18 september Anti-Money Laundering & Terrorist Financing 19 september Integrity at Work (held jointly with University of Introductory Workshop† £500 Edinburgh Business School)† 19 september Ethical Finance – What’s In It For Me? † (half day, Scotland: University of Edinburgh Business School, 29 Buccleuch morning) £300 Place, Edinburgh 24 september Essentials of Supervision† £500 20 september Bank of England Update (event with CIMA and ACCA)† 3 october Updated Thinking for Packaged Products† £500 Yorkshire: DoubleTree by Hilton Hotel, 2 Wharf Approach, 8 october Retail Derivatives Update † (half day, morning) £300 Granary Wharf, Leeds 8 october Retail Securities Update† (half day, afternoon) £300 25 september Behaviouralising Finance: Maximising 10 october NEW COURSE: Corporate Governance Best Practice† £500 Anxiety-Adjusted Returns† 15 october Behavioural Economics – the FCA and You and Your Jersey: The Royal Yacht, Weighbridge, St Helier, Jersey Clients† £500 26 september Social Media for Business: The Things You Really 17 october Getting to Grips with Operational Risk for Non-Operational Need to Know Risk Professionals† £500 Birmingham & West Midlands: Brewin Dolphin, 9 Colmore Row, Birmingham 22 october Client Assets and Client Money (CASS)† £500 26 september Guernsey Investment Briefing: Megatrends† Guernsey: The Old Government House Hotel, St Ann’s Place, Member and Fellow discounts St Peter Port, Guernsey Professional courses discount: Fellows 35%; Members 30%; Associates 20%. To book: cisi.org/events [email protected] +44 20 7645 0652 The following discounts are applicable only to one course per year: Affiliates 30%; Students 20%. †This event meets annual CPD requirements for members affected by the Retail Distribution Review. Please note that To book: cisi.org [email protected] +44 20 7645 0777 all RDR CPD must be relevant to your role.

27 diary

Professional forums Branch events 3 october AIFMD: Impact and Analysis† Members’ events Scotland: TBC (Edinburgh) The CISI’s six professional 26 November: The Need 3 october AIFMD: Impact and Analysis† forums are a key for Better Corporate Scotland: TBC (Glasgow) membership benefit. Governance – A Roundtable Event Covering the areas of Chairman: Debbie Clarke, CF, Chartered 16 october Will China Rewrite the Rules of compliance, corporate MCSI, Corporate Finance Director, World Trade and Finance?† finance, financial CV Capital Manchester & District: Yang Sing, 34 Princess Street, Manchester Dennis Hall technology, operations, risk and wealth Financial Technology 16 october Emerging Markets Debt: Entering management, these 19 September: Cloud Computing – Has it the Mainstream?† discussion groups will Come of Age in Our Industry or is There a Bristol & Bath: Hilton Bath City Hotel, Bath meet regularly in Long Way to Go? central London over the Speaker: TBC 16 october Time for TEA: An Introduction to autumn period to debate Tangible Ecological Assets† current issues and hear Operations Guernsey: The Old Government House Hotel, St Ann’s Place, St Peter Port, Peter Brown, presentations from 18 October: RDR and Platforms Chartered FCSI industry speakers. Speaker: Nick Emmins, Director, Guernsey Events are generally held Business Development, Sales 18 october Annual Dinner – Guest at midday with a light lunch provided and Distribution, RBC Investor speaker: Eve Pollard and time to network. These sessions Services Trust Isle of Man: Mount Murray Hotel, Santon are free and open to Fellows, Members, Associates and Affiliate members of the 20 November: Safe Custody and Nominees 24 october Annual Dinner Institute. Student members may attend – Post RDR, Do You Know Everything You West Country: Reed Hall, University of one event of each forum annually. Should to Evidence Due Diligence? Exeter, Streatham Drive, Exeter Speaker: TBC 30 october Football Tournament Forthcoming events: Yorkshire: Goals Soccer Centre, Redcote Compliance Risk Lane, Leeds 25 September: Don’t Forget Financial 12 September: ESMA’s Influence on the 6 november Allocating to High Yield / Crime – Just Don’t Become the Criminal! Buy-side Risk Agenda: What Risk Managers Corporate Credit† Speaker: Peter Brown, Chartered Need to Know Birmingham & West Midlands: TBC FCSI, Training Consultant, CCL Speaker: Robin Clark, European and City Training Public Affairs Director, AXA Investment 7 november Where Next for the Economy?† Managers, and other industry experts Manchester & District: Barclays Wealth, 3 27 November: Around the FCA in Hardman Street, Spinningfields, Manchester 180 days – A Roundtable on Challenges 21 November: ILAAs and Liquidity Risk Faced by the Regulator Speaker: TBC 12 november Assessing Suitability and Chairman: David Moland, Chartered Remaining Ethical Whilst Avoiding Disputes† FCSI, Head of Compliance, Arbuthnot Wealth Management Yorkshire: DoubleTree by Hilton Hotel, 2 Latham 2 October: Philanthropy Hard Issues Wharf Approach, Granary Wharf, Leeds Speaker: TBC Corporate Finance 14 november Will China Rewrite the Rules of 17 September: ISDX, AIM, GXG 5 November: The Answer is RDR. Now, World Trade and Finance?† – What Does it all Mean? What Was YOUR Question? Jersey: The Royal Yacht, Weighbridge, Speakers: Simon Kiero-Watson, Head of Speakers: Dennis Hall, Life Financial St Helier Markets, GXG Markets; Paul Haddock, Planner, Yellowtail; Malcolm Murray, Head of Business Development and Head of Marketing, Transact; Nick 14 november Annual Dinner – Guest Sales, ISDX; Vivienne Cassley, Senior Gibson, Chartered FCSI, Director of speaker: Nicholas Parsons Manager, Primary Market Sales, ISDX; Compliance Solutions, Chase Cooper Manchester & District: The Lowry Hotel, Marcus Stuttard, Head of AIM, London Salford Stock Exchange (LSE); Ian-Patrick For more information about Lauder Business, Development forthcoming forum meetings, To book: cisi.org/events Manager, LSE visit cisi.org/pf [email protected] +44 20 7645 0652 Hardman street, Spinningfields, Manchester

special guest This year the CISI Corporate Finance Greenwood. By 1998, the company was public Professional Forum committee has arranged for and Jeremy was promoted to Chief Executive Corporate Finance Forum Jeremy Delmar-Morgan (pictured), the before moving on to the role of Chairman of the mastermind behind the success of both Board in 2000. Jeremy went on to reproduce the unveils dinner speaker Teather & Greenwood and Hitchens, Harrison same success for Hitchens, Harrison & Co, & Co, to speak at its annual dinner. Jeremy will London’s oldest established stockbroker, which share his tales, both in and out of the City. was sold to Religare for £65m. Jeremy studied medicine at Cambridge and life The dinner will take place from 7pm on as a doctor was laid out in front of him until 16 October at the Naval and Military Club, Porsche offered him an appealing alternative as 4 St James’ Square, London SW1Y 4JU. its official driver. Embracing the opportunity, Tickets cost £85 (including a three-course Jeremy raced around the world until, following meal and wine). an accident, he decided to join the City. He Don’t miss your chance to hear Jeremy speak. progressed quickly in financial services, working To book your seat, email [email protected] or his way up to Senior Partner for Teather & call +44 20 7645 0652.

28 September 2013 cisi.org

members

Membership admissions and upgrades

MCSI Killik AXA Henderson Rowe Renaissance Aberdeen James Gatehouse Lionel Desvernay Alexander Fahie Management Richard Owusu Hazel Guilder Kinetic Partners Azure Keith Whitehead Michael Halfhead Sarasin ACPI Tammy Li Adam Locke Henyep Capital Markets United First Partners Guy Davis Pat Gartland LCF Edmond de Barclays Yan Ge Susan Barlow Smith & Williamson Advisa Rothschild Stephen Blampied ING Barings University of Greenwich Catherine Griffiths Paul Hamer Christoph Ladanyi Yolande Escher Dwivedi Adrian Wyborn Renata Jaruseviciute Piers Inkin Alliance Capital Momentum Hannah Price University of Ulster WH Ireland Wali-Ul-Maroof Matin Robert Rhodes Samantha Sharples Laura Elsworth Marc Connolly Craig Allison AON Benfield NM Rothschild BNP Paribas Henry Simpson Vestra Wealth Philip Hanson Daniel Riley Vincent Andraud J.P. Morgan Kelly Salmon Chartered MCSI Azure Wealth NatWest Lucy Banks Marion Zimmer VSA Capital Alexander Forbes Massimo Scalabrini Steve Lloyd Heather Bannister Jefferies International Edward James Hugo Richard Buchanan Bank Leumi Newton Keith Barker Fiona MacLeod Walker Crips Aria Capital William Foster Charles Bueno De Jason Cameron Georgina Cockcroft Management Bank of Ceylon Mesquita Daniel Doyle Alicia Roberts-Brown Westhouse Securities James Hindmarch Prabath Shammika Nomura Gavin Richard James NCB Capital Lee Williams Barclays Ahangama Arachchige Dilan Abeyratne Duncan Mohammed Omar Agha William Hill Sean Gallagher Bank of New York Justin Nash Paul Facey Layla Al Bassam Moses Ogutu Bestinvest John Paling Nsure Kaye Falconer Nedbank Worldspreads Sanjay Vaid Barclays Richard Cohen Konstantinos Fatouros Angela Davies Christopher Roff BNP Paribas Aine Kelly Quilter Graeme Ferguson Xcap Securities Rhona Gregg Callum Petras Antony Clark Matthias Huber Philip Brennan Richard Faithfull Brewin Dolphin Baynard Associates RBC Europe Adrian Manzaroli Optiva Securities Zenith Bank Jason Downie Glen Cochrane Oliver Saiman Jenny Rowe Peter Comrie Neil Hitchens Jonathan Godfrey Beaufort Securities Redmayne-Bentley Robert Shaw Christian St John-Dennis Others Jonathan Treen Thomas Sayers Charles Goodall Graham Smith Pilling Huzam Abdulla Charles Stanley BNP Paribas Rowan Dartington Jennifer Suttie Joseph Ashton John Phelan Lee Enright Alex Preston Kevin Bowhay Paul Watts Quilter Golam Sakline Credere Brewin Dolphin Royal Bank of Scotland Brewin Dolphin Jonathan Raymond Charlotte Walford Stephanie Le Tissier Christopher Feeney Chris Hancock Rathbones Chartered FCSI Financial Conduct Sanlam Group Caledonian International Mark Baker 1st Port Asset Authority Drew Stafford Simon Woodiwiss Christopher James Robert Chapman Management Jamain Graveney Charles Stanley Selftrade Emmott Rock Nicholas Palmer Fiserv Paul Heath Anna Dabrowska Central Markets Peter Murphy ABN Amro Obinna Emelogu Benjamin Burdett Money- Seven Ben Phelps Rowan Dartington Stewart Appleby HSBC Coutts Rachel Smallcalder Channel Islands Gary Hinde Accenture Anthony Gifford Coutts Stock Exchange Nicholas Tilson Nick Mangan Bruce Champion Paul Groden Laura Elder Sean Costello Barclays IM Paul Eva Richard Callin Charles Stanley Victoria Filatova Scott Farnetti Amarjit Bansal Lee Downes Samuel Le Breton Rupert Forrest LJ Athene Matthew Haimes Anchalee Hongsukpant CISI Neil MacDonald Brewin Dolphin Charles Hamilton Tomasz Lyjak David Swain Robert Cronin Hannah Sauer Robert Bramham Lussinia Shaileen Morjaria Abbas Walji Sanlam Group Harry Burnham Bob White DPZ Synergy Standard Life Gavin Braiden Richard Goldsmith Victoria Eastwood McKenzie Kevin Goodbody Rachel Kerr Computershare Seven Steven Keppie Andrew Magill David Booler Talbot Underwriting Gemma Powell Jack Ellis Turner Isabel Kwok Midas Andrew John Durrant Michael Hinton Coutts Smith & Williamson Sean Priestley Simon Reeks White Threesixty Services Stuart Buchan Robert Berkeley Luke Rundle Ogier Dial Partners Gretel Ann Cook Nicola Spencer-Hopkins Laura Charles Richard Umpleby Nicola Le Brocq Scott Young Towergate Patricia Taylor Augustus Edwards Lydia Wilmshurst Quilter Equitrade Capital James Keenan Credit Suisse Robin Ellis Brooks Macdonald Gaylynn Parks Sajid Iqbal UBS Brian Carty Jamie Kirkpatrick Lindsay Spencer Helen Russell Festival of Life Paul Alker Andre Guimaraes Emma Latham Butterfield Private Bank Rathbones Ejirooghene Ideme James Horton Matthew Wells Ania Mountford George Holmes Adam Jones Finance Bank Guy Newman Custodian & Allied Standard Chartered Cardale Raymond James Abbas Fahs Christopher Stephens Insurance Urvi Shah Ian Wood Peter Dunham Guaranty Trust Bank Vantage Akinyemi Sadiku Standard Life CQS William Forsyth Kelvin Biiranee Nigel Avey deVere Group Peter Silver Kathryn Haswell Redmayne-Bentley HSBC Vestra Wealth Daniel Adams SteelRock Credit Suisse Paul Mcknight Richard Bell Adam Pryce-Jones EFG Private Bank Charles Watt Adrian Starr Rothschild Russell Connor Others Darren White St James Property Equiniti Ratnakar Dalvi Maria Elena Gatt Floridia Kay Broughton Engage Mutual Management Tony Theobald Sanlam Martin Hill Juan Pablo Cortes Assurance Chris Williams F&C Ian Porter Integrated Trust Mark Fail Stephen Archer Stocktrade Alison O’Neill Speirs & Jeffrey Oluwafemi Lawore Bryan Foss Falcon Private Wealth David Roe HSBC Claire Begley Investec Sascha Gorgin Matthew Burrows Subsea 7 Thomas Hills Standard Bank Adam Brewer Beatrice Khine Adrian Christofides Satvinder Singh Basra Investec Michael Smith Wayne Harding Patrick McMeekin Farley & Thompson TD Waterhouse Anthony Kauntze Standard Chartered JO Hambro Anthony Nichol Martin Poole Alex Larkman James Brearley Roger Clay David Gibbs Financial Conduct Tees Financial Richard Allen Christian Thurow James Brearley ACSI Authority Joshua Young Jupiter Standard Life David Hannis Age Partnership Natalia Stevenson The Financial William Luttrell-Hunt Anthony Emmings Ian Smith James Marshall Fogwill Jones Corporation Killik Wealth At Work Nigel Corrie Aiken Kennedy Colin Fogwill Harsha Jethmalani Fabrizio Argiolas Jonathan Wiseman JM Finn Roger Kennedy Friends Life Towry Stephen Main Others Alexis Monoogian AON Jeffery Boyles Neil Gruncell Kleinwort Benson Jonathan Beckett J.P. Morgan Anilkumar Mistry Gatehouse Bank Triland Metals Natasha Coleman John Kut Roger Harrold Arcadia Stuart Jarvis Ittai Ben-Ze’ev PSigma Bradley Stratford Francis Pereira Stephen Shelter Grainger Geoffrey Cooper Kames Capital Arden Partners Alison Beeston Jacek Musialski Quilter This list includes admissions Kenneth Ward Jamie Cameron Guernsey Financial Ross Baldock and upgrades from 24 May to Keymar Haslam Arjent Services Commission Michael Bull 30 June 2013 Martin Haslam Francis Aylward David Farrelly

Answers to the quiz from page 10: 1:D, 2:A, 3:D, 4:A

29 people

Graham at the ‘How to Secure that Elusive First Non-Executive Director Role’ event, an FCSI Masterclass that he recently spoke at. He is shown with fellow speaker Joëlle Warren, Executive Chairman, Warren Partners

healthy and ‘giving back’ to the community, by working for a charity or a community overseas, for example, or by becoming a school governor. However, the element that has proved most popular is a section that promotes paid and unpaid job opportunities. Graham says: “We have responded to this by concentrating on two aspects: publishing an aggregated list of non-executive director roles that are available and encouraging retirees to use their skills and experience to mentor small companies. We also publish a list of ‘voluntary jobs of the month’.” The site’s listing of non-executive director jobs is in the top three Google searches for New lease that heading. The site – developed on “the proverbial Reinventing retirement is the shoestring”, Graham says – very much relies aim of Graham Ross Russell on input from users to grow and develop, FCSI(Hon), founder Chairman with visitors encouraged to add comments, of the Securities Institute, questions and views on the subjects under of life discussion, raise new topics and contribute the forerunner of the CISI. to a blogs section. Lora Benson reports Graham’s distinguished career in the world of finance began in 1956, when he joined a two-year training programme with Morgan graham ross russell enjoyed a busy interested, and making use of their skills and Grenfell and Barings. After studying for an 45-year career in financial services, which experience, they will benefit themselves and MBA at Harvard Business School in the US, included serving as Chairman of the Institute also the community. Graham returned to London to run the for eight years following its formation in 1992. “Not everyone in retirement is lucky corporate finance side of John Prust (later Having dedicated his working life to the enough to have a hobby or clear vision of what Laurence Prust), broker to more than 60 industry, he could be forgiven for wanting to they intend to do. My intention for listed companies. put his feet up in retirement. But there is no RetirementReinvented.com was that it should He was a partner of that firm up to and chance of that happening. His view is that be a compendium of activities and interests following Big Bang in 1986 and during that retirement should be the beginning of an that retirees can take up or develop. I was also period served on the Council of the Stock exciting new chapter in life, rather than keen for users to contribute to the site.” Exchange, where he was Deputy Chairman. signalling the “start of a slide into senility”. This led to him becoming Chairman of the In collaboration with friends John Securities Institute, which evolved from the Whatmore and Julian Nokes, with whom he RetirementReinvented.com Stock Exchange. Graham and three other plays tennis, Graham hatched the idea of a is a compendium of activities former Stock Exchange Council members website to enable people to make the most of launched the organisation from a back room their time during retirement. and interests for retirees in Throgmorton Street in the City of London. The result is RetirementReinvented.com Graham still puts his knowledge and skills and, six years after being launched, the site The ‘Developing Interests’ section features to good use by working with small companies, is going from strength to strength. information on more than 100 pursuits with supporting innovation and encouraging the Graham, who has the distinction of being links to useful websites for further details. growth of start-up and fledgling firms. number one in the list of CISI members, These include everything from archaeology, says: “Retirees are now much younger, in attending parliamentary debates and further Further information: RetirementReinvented.com fitness if not years, than formerly and have the education to sailing, being a film extra, prospect of maybe a third of their life before singing and yoga. Got an interesting hobby? Contact Lora Benson them. If they can take the opportunity to Other areas of RetirementReinvented.com at [email protected]. If your story is featured, enjoy their retirement by keeping active and cover travel, managing your finances, keeping you will receive £25 of shopping vouchers.

30 September 2013 cisi.org