Woodford's return and the SM&CR

This morning, various newspapers reported that Neil Woodford, the founder and Chief Investment Officer of Woodford Investment Management, is making a comeback to the investment industry.

Of course, many will know that Woodford Investment Management failed spectacularly in 2019, costing investors close to a £1Bn loss by some estimates.

The root cause of Woodford Investment Management's failure appears to have been a fundamental failure to understand and manage liquidity risk. In fact, by designing funds that hold illiquid assets in open-ended funds that allow for daily dealing, a high level of inherent liquidity risk is designed. The then governor of the Bank of England, Mark Carney, recognised this design problem, describing these funds as "built on a lie".

So, if the reports are correct and Neil Woodford is returning to the Investment industry what does this tell us about the Senior Managers & Certification Regime (SM&CR) and the broader drive by regulators (FCA & PRA) and government to improve the culture of the UK Financial Services industry?

If Neil Woodford is allowed to return to the investment industry in a regulated capacity, this would completely undermine the Senior Managers & Certification Regime's credibility and call into question the commitment of regulators and government to drive a culture change within the UK Financial Services industry.

Post the collapse of Woodford Investment Management's collapse city grandee and former city minister, Paul Myners said, "The most profound implications of the Woodford crisis have been brushed under the carpet,"

Is the Senior Managers & Certification Regime, and the drive to change the culture in the financial services industry about to go the same way?

Events, dear boy, events...

Events, dear boy, events…this is a quote often attributed to former British Prime Minister, Harold Macmillan and one that will be ringing in the ears of many business and risk professionals as they watched turbulence unfold in the markets yesterday. Many will now be waking up, asking themselves what does the coronavirus and this market turmoil mean for them.

Up until yesterday; the coronavirus crisis had grown relatively quickly but steadily. After a history of SARS, Swine Flu and the like, many firms would have, at least a semblance of, a response plan which could be used as a basis for a coronavirus response plan.

However, I wonder how many of these plans consider the implications on the firm’s business model, ability to deliver operationally and strategically, on their balance sheet, P&L etc. I wonder further how many firms have thought the scenario where; in the face of a potential global pandemic, the world experiences an oil price shock leading to a dramatic drop in the value of listed companies worldwide and creating significant, additional uncertainty going forward.

Events, dear boy, events…this reflects the times we live in and underlines why firms need to build risk-based management systems, embed risk-based decision-making within their culture and put in place the technology and data architecture to enable firms to execute operationally and strategically in these times of significant uncertainty.

A simple way to think about culture from Richie McCaw

Financial Services Culture - 10 Years after the crash

In this video from the FT, Gillian Tett asks if banking culture has really changed it is clear to see the seeds of the Senior Managers and Certification Regime (SM&CR) in the interviews in this video. Gillian Tett ask the question; Has culture in Financial Services changed? Let me know what you think.