Enterprise Compliance Risk Management

Chapter 11Lessons Not Learned

“He who is not contented with what he has, would not be contented with what he would like to have.”

—Socrates

“Where is wisdom we lost in knowledge? Where is the knowledge we have lost in information?”

—T. S. Elliot, “The Rock”

There have been lessons to be learned time and again from financial services firms' failures, collapses, takeovers, bailouts, breaking down of components, sales, and astronomical fines that grow more astronomical by the day. History has loads of examples where firms that have been in existence for a century or more have disappeared, almost overnight; some scandals have shaken the economy of a country.

Loopholes in the system have always been exploited in all industries. What makes financial services particularly vulnerable is the fact that they deal with other people's money, and their own stake is limited to 8 to 10 percent. It is the market (in terms of borrowings) and customers (in the form of liabilities) that fund these firms. Failing in this industry affects a large cross-section of stakeholders apart from threatening the very existence of the firm, and that is the concern.

Each of the cases that are discussed next can almost always be traced to four main categories with one theme underlining all of them—individual avarice. A fifth got added recently. I have, therefore, segmented and grouped them as such. The four-plus-one classes are:

1. Slack internal controls.
2. Disregard for regulatory, industry, and internal standards. ...