Interview with Charles Hastie, Regulatory Head, Clutch Group
Charles Hastie, Clutch Group’s recently appointed Regulatory Head sat down with us to share his thoughts on the current regulatory landscape. Prior to joining Clutch Group, Charles was a Supervisor and Forensic Investigator at the Financial Conduct Authority, where he developed and implemented supervisory strategies for a large financial institution and monitored the bank’s conduct change and remediation programmes against regulatory requirements. He also handled several FCA investigation cases about market abuse, UKLA Listing Rule breaches, and FCA principles breaches.
Why did you decide to join Clutch?
There are three key reasons. The first reason is Clutch’s culture, which is unbureaucratic and innovative. The second reason is that there is a growing need for banks to investigate and deal with their data, so there is a lot of work for Clutch to do in this area. The third reason is that every aspect of my CV is relevant for my work at Clutch. I’ve spent several years working on trading desks. I’ve also worked in internal audit departments at a brokerage companies and a hedge fund where I went through every aspect of the company – from treasury to trading to sales – and developed an understanding of each department and what could go wrong. I’ve worked at the FCA as an investigator, which is obviously relevant for Clutch.
What will be your focus at Clutch?
My focus will be on three key elements. First, for investigations, to bring a regulator’s perspective, to identify what Clutch should look for. Where relevant, I also want to bring a trader’s perspective to the review of data. I speak the language of traders and know how they think and operate. It’s important to get inside the trader’s mind. Second, to serve as an expert at Clutch on regulation and regulators, ensuring that Clutch is up to date on the latest regulatory developments, taking responsibility for internal training, publications and education. Third, to ensure regulators know who Clutch is and what it does and that they hold Clutch in high regard.
Tell us about your years at the FCA.
At the FCA, I worked in three different roles. First, as an investigator of regulatory misconduct, including market abuse and trader misconduct. I led investigations from cradle to grave, from the investigation’s design, to interviewing suspects, to gathering evidence and presenting the findings to the FCA’s Regulatory Decisions Committee. In addition, I spent some time as a sort of gatekeeper for Enforcement, vetting cases for referral to Enforcement, liaising with external agencies like the SFO and US agencies. This was a useful period during which I worked on a wide variety of cases. Finally, I spent my last year as the FCA Supervisor of a major investment bank.
You’ve spent years investigating financial services firms for misconduct. Regulatory bodies like the FCA, PRA and SFO – as well as their counterparts across the world – have never been busier and are issuing record fines. What is driving this increase in focus and activity?
At a high level, this is still a response to the financial crisis. Severe prudential and conduct failures gave the impression that the banks have not been very good at regulating themselves. So the pendulum swung away from light touch regulation to intrusive regulation and draconian enforcement action.
Globally, when LIBOR was first published, the general reaction was of amazement and horror. The response of regulators was severe – there could have been no greater warning to traders as to the consequences of poor behavior. But then the FX issues emerged, which raised the prospect that the LIBOR behavior was not an outlier, but perhaps representative of the default behavior of traders. Poor culture seemed very entrenched. Part of the problem is that it seems that no matter what stone is turned over, there is always something ugly underneath, and that has created a snowball effect.
A proliferation of data and electronic communications, as well as the use of new technology, has multiplied the avenues through which misconduct can occur. How can companies turn this narrative around by using technology to shore up compliance?
The proliferation of data has made the job of Compliance more difficult. A key message to firms from the FX scandal was that traders must be monitored better. This creates a need for an improved surveillance program, but this is difficult because traders start using code or different communication systems. This increases the need to design more intelligent ways to identify suspicious behavior. Companies can use new technology to increase compliance results.
Financial services firms, particularly those who have borne the brunt of regulatory action, claim that regulatory demands are overly burdensome, inconsistent and unrealistic. Is there any validity to these claims? Is there a balance to be found here?
To some extent those complaints are understandable. The burden has never been greater, but the truth is that light touch regulation didn’t work. But banks can get their house in order by using better preventative measures, such as training and conduct risk programs, and improving detective controls such as surveillance, and taking appropriately robust action when things do go wrong. If firms can demonstrate that they are taking the necessary internal actions, then over time the pendulum can swing back and regulators may become less intrusive.
What is next on regulators’ agendas? On which areas should banks focus?
In the UK, the upcoming Senior Managers Regime is very significant. Historically, it has been very hard to prove or hold senior managers responsible for things that happened further down the company, and therefore senior managers didn’t feel accountable. But now the burden of proof will be reversed, and Senior Managers will need to demonstrate to the regulator that they took all reasonable steps.
Another key area is the Fair and Effective Markets Review initiated by the UK government in response to FX and LIBOR. This was to review how the markets operate and identify the root causes of issues. The report was published this June and made recommendations, including some relating to trader surveillance and improved training around antitrust laws.
Finally, on a high level, what regulators want to see is that firms are detecting and dealing with misconduct themselves. If firms can detect and investigate misconduct, and punish and remediate and compensate appropriately, if a firm can demonstrate all those things, then that takes away from the need for Enforcement to get involved.
About Clutch Group
Founded in 2005 by top attorneys from leading firms and business process pioneers, Clutch Group has grown to a team of legal, technology and process experts in seven offices across three continents. Clutch was built from the ground up to help General Counsels more effectively manage problems within Fortune 500 companies. Clutch combines its expertise in harnessing technology, implementing process and focusing on fact development to deliver risk-measured, cost-optimized solutions for clients. Clutch Group has been consistently ranked as a top provider by industry research as well as client satisfaction since its inception and has been recognized by industry authorities including Nelson Hall, the New York Law Journal, the International Association of Outsourcing Professionals (IAOP), Chambers Global, Frost & Sullivan, the Black Book of Outsourcing, and Dun & Bradstreet. For more information, visit http://www.clutchgroup.com.