THE REAL PROBLEM BEHIND BANKERS’ BONUSES
Said Tabet, Lead governance risk and compliance strategy at EMC
Earlier this month, the media was divided in its coverage of the new measures around bankers’ bonuses with some saying they “don’t go far enough” and others saying they’re “unnecessarily convoluted” and the “emphasis on bonuses is being vastly over-emphasised”.
But the need for a 3, 5 or 7 year period to ‘discover’ excessive risk exposure in a world of real-time data underlines the core problem here – not that bankers are paid bonuses, but that banks lack the infrastructure and capability to derive real-time insight into their risk exposure and into the actions of their staff. This means that it is only possible to detect and take action on the basis of this exposure long after the fact – by which time money may be lost and the damage may be done.
More intelligent approaches to risk management enabled by big data analytics and agility, empowered by better standards and better integration of different systems and applications will provide a much stronger, real-time handle on sector risk exposure. This in turn will support growth and push the boundaries of competitiveness further, as confident assessments on strategy and tactical activity can be made based on what’s actually happening, and what risks the bank is actually exposed to.
There’s a huge imperative that regulation in the financial services sector is focused on driving the sector to a degree of best practice. Leveraging technology and applying best practice to data and metadata will ultimately help with systemic risk as well. Arguably this is more important than providing generic personal or corporate disincentives to cavalier behaviour. The regulatory framework needs to match that of the progress technology is making and we need financial regulation for the 21st century, not that of 20 years ago. Ultimately this will help make this sector more efficient and more effective – a win-win for all stakeholders.