Rogue Employees Show The Need For Analyzing Internal Data

Chris Skinner

It’s interesting to see the heat banks are taking over employees taking unapproved and sometimes illegal actions. Each time, the bank’s leadership team is held to account over the issue. Should they be accountable, and can technology help? I think it can.

I always remember being asked by a bank’s head of audit whether there was a dashboard he could use to check whether staff were following company policy. Another head of compliance asked me the same, as has a leader of fraud and cybersecurity. What they are all seeking is some way to see front-line activity and determine whether it is following company policy or breaching rules.

This is a challenge in all aspects of banking. In many instances, the issue is actually culture, where leadership has created a management that incentivizes staff to be product pushers rather than customer advisers. A product pusher is purely trying to attain sales targets and, in the case of Wells, the fear of missing those targets and losing your job became a key aspect of the cultural poison. A similar issue occurred in the UK with payment protection insurance (PPI), where some UK banks’ staff falsely added PPI acceptance to customer loans after the customers had left the branch. You had a cultural issue.

I’ve seen similar issues in money laundering, with the massive fines over the past few years by U.S. regulators (mainly of European banks) shining a spotlight on the issue. In particular, there were the issues related to the Money Transfer Network (MTN) and its use in South America, Africa, and the Middle East. I’m aware that this exposure was identified almost a decade before the U.S. acted, but the various global banks’ lines of business involved were more motivated by profit targets than compliance, hence it was allowed.

We saw the same issue arise with Kweku Adoboli, a rogue trader who lost his bank $2 billion in 2011, and Jerome Kerviel, who cost his bank $5 billion in 2008. Both rogue traders blamed the culture for their behaviors, and so the bottom-line has to be how to instill a profit-focused culture while maintaining behavioral controls.

This is the real question the leaders of audit, compliance, fraud, and cybersecurity were asking me, and it is the core challenge of every financial institution: How can they increase market share and profitability while minimizing risk and potential exposure? There is a way to do this with today’s technologies. We talk a lot about Big Data, data analytics, artificial intelligence, and machine learning. These are the technologies that are being applied to customer data to look for sales opportunities, roboadvice, and fraudulent transactions.

What these technologies have shown is that they can see in real-time who, what, where, and how activities are taking place on a micro level, account by account. By way of example, several big banks are using deep data analytics and machine learning to provide ultra-high net worth individuals (UHNWI) with predictive and proactive advisory services. Every morning these clients receive personalized analytics of their investment portfolios based upon their risk appetite, showing them dynamically updated information about where they have weaknesses and opportunities.

These same technologies could and should be applied internally to employee data. If a bank wishes to seriously avoid the wanton behaviors of front-line staff in retail, commercial, or investment banking, then monitoring their behaviors using their digital footprint of data access and updates is the way to do it. This can be achieved using the very same controls we are using for customer data but, unlike chasing sales for profits, this would be chasing staff for exposures. The real question is whether a bank has the motivation and capability to use such technologies for these areas. After all, increasing profit is far more a focus than avoiding fines. Or is it?

For more on digital transformation in the financial industry, see Digital Disruption: Banks Have Their Uber Moment.

About Chris Skinner

Mr. Skinner is chairman of the Financial Services Club, CEO of Balatro Ltd. and comments on the financial markets through his blog the Finanser. He can be reached at