Disconnecting accountability at a global level

Citi was in the headlines this weekend for taking a stance on the ‘tough new banker accountability rules’. The FT reported that Jim Cowles, Citi’s EMEA chief executive, believes that the Senior Managers Regime should be applied to the individuals that specifically run European or EMEA business functions, not necessarily the global heads even though they may be based in London.

The details of Citi’s stance are not public but it is important to notice the distinction made by Mr Cowles and the FT’s lead ie his specific reference to the Senior Managers Regime rather than the broader individual accountability regime which also includes the Certification Regime and Code of Conduct (COCON).

In short, you are in the Senior Managers Regime if you perform and Senior Management Function therefore it appears that Citi’s aim is to avoid placing global heads in Senior Management Functions even though SMF6 (Head of key business area) and SMF18 (Other Overall Responsibility) might be considered appropriate.

From a macro perspective the banking business can be described as managing risk to an acceptable level in order to achieve the strategic business goals. The goals typically being profit and growth, often wrapped up with lots of words about customer service and ethical operations. Citi give some insight to their strategy on their Citi at a Glance webpage, they say:

‘Citi and its management team continue to make steady progress toward the successful execution of its strategy, which is to

  • Enhance its position as a leading global bank for both institutions and individuals, by building on its unique global network, deep emerging markets expertise, client relationships and product expertise;
  • Position Citi to seize the opportunities provided by current trends (globalization, digitization and urbanization) for the benefit of clients;
  • Further its commitment to responsible finance;
  • Strengthen Citi's performance, including gaining market share with clients, making Citi more efficient and productive, and building upon its history of innovation; and
  • Wind down Citi Holdings as soon as practicable, in an economically rational manner.’

Clearly, strategy is set at a global level, presumably with input from global heads. There is little doubt that these strategic goals will cascade down and become more specific objectives for the individuals that manage the risk day to day.

The question is, once these objectives are set do those global heads allow executive autonomy on risk decisions at regional level?

A question that the regulators must be considering before approving Citi’s Senior Management Functions. The onus will sit with Citi to demonstrate at which level decision making takes place and by who; creating an even greater need to accurately capture and record the details that will satisfy the regulators now and in the future.

If the regulator does allow Citi to proceed with their approach it doesn’t mean global heads are off the hook, as the Code Conduct extends to all employees and those people that manage individuals within the Certification regime are also considered to be within the Certification regime.

If you have a subscription to the FT the full article ‘Citi’s top bankers could avoid UK rules’, can be found here.