Nick Leeson: No One Asks The Difficult Questions

Nick Leeson: No One Asks The Difficult Questions

Regulatory fines are growing but are doing nothing to combat a culture of manipulation and risk-taking, says former rogue trader  

Editor, Europe
Reviewed by: Rachael Revesz
Edited by: Rachael Revesz

Former rogue trader Nick Leeson, the man who singlehandedly brought down Barings Bank in the 1990s through speculative trading, told an audience of financial advisers at the Inside ETFs Europe conference that very little has changed in today’s financial sector and no one is “asking the difficult questions”.

Leeson, who spoke last week at Europe’s largest ETF conference in Amsterdam, said he traded lots of Nikkei 225 futures which breached his trading limit at least 10 to 15 times a day, but when his boss asked him to explain the large value of trades, he lied that the computer grouped together smaller trades of the same price. He ended up losing a total of $1.3 billion.

“Unfortunately during the time I was at Barings, for that three year period, I was never challenged: nobody asked me the difficult questions or what was going on. I wasn’t a great communicator and neither was the institution,” he said.

Pressure To Succeed

Leeson left school at 18 and went to work at private bank Coutts, then Morgan Stanley for two years in liability management. He was finally headhunted to the futures and options department at Barings bank in London, before moving to Singapore.

“Was there pressure to perform? Of course. But the biggest pressure was my own. I came from a working class background and I wanted to succeed,” he said.

Leeson also said that losses at banks due to risk-taking and poor corporate governance have mounted since his time in Singapore as a 25-year-old, escalating from hundreds of millions to billions of pounds, with regulatory fines reaching a similar level.

“This is a strange contradiction and suggests that the industry isn’t changing as rapidly as it should be,” he said.

The Fines Don’t Work

His speech comes just before a new report called “Global Enforcement Review”, released today by Kinetic Partners, which show that the Financial Conduct Authority fined firms a record £1.47 billion in 2014, up 68 percent from the previous year. Some of these historic fines were due to traders rigging both Forex and the Libor benchmarks.

“We are now entering an era of regulatory enforcement in which the ‘new normal’ consists of exceptionally severe penalties and a growing focus on individual bad actors, the aim of which is to impact and change the culture of firms,” commented Monique Melis, managing director and global head of regulatory consulting at Kinetic Partners.

Of the total fines, only £2.9 million were appointed to individuals. Leeson joked that after four and a half years in prison, a divorce and colon cancer, he is still subject to an injunction of £100 million himself, which he is “no nearer to pay off – I’m not trying too hard either.”

Rachael Revesz joined in August 2013 as staff writer. Previously an investment reporter at Citywire, she has a background in writing content for retail financial advisors and has covered a wide range of subjects in finance. Revesz studied journalism at PMA Media, which has since merged with the Press Association. She also holds a B.A. in modern languages from Durham University, as well as CF1 and CF2 financial planning certificates from the CII.