Kitchen-Table Traders Should be Scrutinized for Naughtiness

(Bloomberg Opinion) -- The Financial Conduct Authority of the U.K. has warned work-from-home traders that their domestic trading desks don’t provide sanctuary from its regulatory reach. The history of money suggests the overseer is right to suspect that conduct may have become more unbecoming outside of the office.

Just 19 months into the pandemic — lightning fast for a regulator — the markets guardian said on Tuesday that finance firms have to prove that remote working doesn’t increase the risk of naughtiness, and that it has the right to visit private residences if it sees fit. As kitchen tables and spare bedrooms have replaced trading rooms, there’s just been that much more scope for financial misdeeds.

Herculean stimulus efforts by central banks and governments to ameliorate the economic effects of Covid-19 knocking the world sideways have fostered one of the easiest bull markets ever to trade — as investment bank results over the past year can testify. Pretty much everything went up and kept going up. So how tempting is it to go along for the ride with a cheeky side bet for the personal account? It’s not as if the regulators themselves haven't been tempted to line their pockets during the boom.

The FCA seems to have belatedly realized that the fear of a knock on the door to have a look-see is a powerful deterrent to dodgy dealing. Certainly, it is more compelling than yet more anti-money laundering computer courses created by compliance departments. Bankers working remotely still need oversight; and a home visit doesn’t impinge on liberties.

The right to play with vast sums of money comes with responsibilities. Banks have been caught rigging everything from Libor rates to currencies to metals prices, all of which happened in plain sight at their trading desks. They can’t complain if the regulator sees their employees’ abodes as being within its bailiwick.  

Modern trading desks at banks are steel traps for capturing every single action that happens in their purview, but even such pervasive monitoring doesn’t always prevent bad things happening, as Credit Suisse Group AG found in its dealings with Archegos Capital Management. But take away the cameras, recorded phone lines, MiFID II justification for every step on a transaction and the in-house compliance team's presence, and life is bound to have become a bit more relaxed. It is not just your boss breathing down your neck but also your colleagues’ presence overhearing your conversations that helps keep most people on the straight and narrow. The restraints are off when you’re in your kitchen all day every day for hours on a mobile phone.

To be sure, bank compliance departments will also have done everything possible to raise remote monitoring to the highest possible standards. And to be fair, the vast majority of players are honest, upright citizens of the markets. But not everyone is equally trustworthy, and the phrases “rules are there to be broken” and “while the cat’s away, mice will play” exist for a reason — which is why compliance departments exist in the first place.

“The mercantile community will have been unusually fortunate if during the period of rising prices it has not made great mistakes,” Walter Bagehot wrote in Lombard Street, his 1873 book. “Every great crisis reveals the excessive speculations of many houses which no one before suspected. The good times too of high price almost always engender much fraud. There is a happy opportunity for ingenious mendacity.''

The prospect of a market officer knocking on the door will be more effective in making a trader think twice about bending the regulations than being required to click through the latest how-to-spot-insider-trading module. Let’s hope the pandemic doesn’t turn out to have allowed “ingenious mendacity” to flourish.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."

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