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This week in regulation

14/05/18

The Speed Read

  • FCA secures confiscation orders against insider dealers
  • Insight: Psychological safety: the secret to effective teams

FCA secures confiscation orders against insider dealers

Confiscation orders have been issued for two individuals, who have been found guilty of insider dealing.

The defendants were previously prosecuted by the FCA for insider dealing and now Southwark Crown Court has issued confiscation orders against the pair totalling £1.69 million.

The confiscation was evidenced by signs of insider dealing in relation to five stocks, however, the total confiscated included profits generated from a further 23 stocks.

In consideration of the defendants’ criminal lifestyle due to the extent of their offending, the court ascertained that profits made from other trading within a defined period was a result of insider dealing. The defendants made no challenge in relation to the additional 23 stocks.

Mark Steward, the FCA’s Executive Director of Enforcement and Market Oversight said the pair “hatched an audacious plan to make significant illegal gains for themselves. They were driven by greed and self-interest, but through their actions they have lost their liberty, their livelihoods and their reputations.”

“The FCA will continue to ensure that those engaged in such activity are held to account for their misconduct.” he added.

With an elaborate strategy, the pair managed to keep their activity under cover, using tools such as unregistered mobile phones, encrypted records and safety deposit boxes. However, their meticulous record keeping served as sufficient evidence to progress the investigation and mapped out the details that led to their conviction.

The defendants were convicted on the 9th May 2016, following a three-month trial. One was sentenced to 4.5 years’ imprisonment and the other to 3.5 years.

 

Psychological safety: the secret to effective teams

Alex Chesterfield, cognitive psychologist, and Laura Smart, behavioural scientist at the FCA, explore how culture benefits from staff’s willingness to call out mistakes.

Using a case study of medical negligence as an example, conclusions were drawn on how individuals should be encouraged to report mistakes so that firms can endeavour to learn from them. The article presents evidence where a culture of blame, fear and hierarchy not only causes harm to patients, but also affects staff negatively too. Everyone is fallible and everyone, regardless of seniority, must feel empowered to speak out to be able to learn from mistakes.

The article discusses other examples of staff failing to speak up, notably in the car manufacturing industry where people not sharing their concerns about safety has led to crises which can be blamed on cultural failings.

More than an individual’s personality and beliefs, the context (including organisational culture) influences people’s likelihood of speaking up when they witness wrongdoing. The willingness of people to express an opinion in the workplace is known as ‘psychological safety’ and ideally creates an environment where leaders are willing to learn from mistakes and workers aren’t afraid of negative consequences when speaking up.

Speaking up doesn’t come naturally as most people don’t want to harm their reputation or image. This ‘impression management’ affects how you receive commendation from your boss, including promotion, and also, on a psychological level, your propensity to seek and appreciate approval from your peers.

Using checklists to prevent mistakes being made and encouraging people to speak up are effective tools, but these must be used in tandem with personal accountability and a moral responsibility to avoid a ‘tick-box culture’.

How does this apply to financial services?

Although there is a lack of data relating to financial services in this area, it’s clear that speaking out in some companies goes against the grain with people fearful of losing benefits, bonuses and in certain firms even their job.

The cost of silence isn’t always clear in financial services. Unlike the patient on the operating table, workers in financial services do not always witness the consequences of their actions.

Firms need to be receptive to uncomfortable truths and be open to change in response. By creating healthy practices that reveal and confront difficult issues, there is a greater likelihood that people will speak up. It can be easier (and better) to flag small risks or concerns earlier than deal with more serious consequences at a later date.

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