I saw a Black Swan, but I can't prove it...

This weekend my family and I spent time in our new caravan holiday home overlooking the beautiful Poole Harbour, and despite temperatures of -1 oC, we had a fantastic time together (I was very pleased to note that the caravans of today are somewhat more suited to the out-of-season climate than those I visited in my youth).

The whole point of taking the caravan on was to have a bolt hole that was only an hour down the road, but far enough removed from day-to-day life that it allowed us to switch off from all thoughts of work and school, and to enjoy being a family. Now anyone else who has three children would not be at all surprised to know that my Wife and I are planning our next visit minus children…

What I found this weekend, was that whilst I sought to switch off conscious thought regarding work, certain moments occur that send your mind straight back to your desk, albeit from far more idyllic surrounds.

One such moment occurred early Sunday morning. I'm usually the first one awake in the household and Sunday was no different, so the family dog elected me dog walker in chief. Whilst cold, it was a beautiful morning so we took a long walk along the beach facing into the harbour, with the Sun rising majestically over Brownsea Island, shimmering across a perfectly still sea. Clearly wanting to capture the moment, I reached for my phone, selected the camera, and…

 .. the battery died.  And then it happened..

The blackest of Black Swans with the most wonderful red bill I have ever seen glided past, launched into the air, and flew low across the water before looping up and disappearing from sight. The failure to capture this on camera was my Black Swan event of the weekend. My mind was back in the office..

In planning this weekend, I reviewed forecasting information and ensured that we were prepared accordingly. I knew it was highly likely to be cold – I knew we had heating and took plenty of warm clothes – so as the risk materialised it was mitigated without impact. But I certainly wasn’t prepared for my Black Swan.

Now the impact in this instance was simply a few jibes from the family, however within our working lives we all spend time considering how a black swan event may impact our business, and in reality the impact of such events can be catastrophic. Often when we consider such events, we try and second guess the form in which they may arrive – whether this be new regulation, fundamentally at odds with a business plan, or an external geopolitical event - this weekend reminded me that good risk mitigation starts with doing the basics well.

..this weekend reminded me that good risk mitigation starts with doing the basics well.

All the horizon scanning in the world wouldn't have suggested that I would have been presented with a perfect picture opportunity, but the fact was, that I wasn’t prepared. In truth, the Black Swan event in this instance was an unexpected impact of an expected risk – my phone ran out of battery. This was made more likely by the simple fact that we had not bought enough chargers – we had 1 charger for 5 devices, and 'Dad's phone' came pretty low down the pecking order.

In this instance I would have fallen fowl (no pun intended) of any reasonableness test, and I have to put my hand up to the fact that my Wife had directly apportioned responsibility for the packing of chargers to me.      

Within the regulated environment of financial services there are many example of unexpected impacts to risks that were, or should have been expected. From Rogue trader incidents, to the PPI mis-selling scandal, such events are often the product of simple failures in systems and controls, and nearly always indicative of poor culture.

..such events are often the product of simple failures in systems and controls, and nearly always indicative of poor culture.

As with the case of my simple failure to pack sufficient chargers, the simple failure to manage access controls when a member of staff moves from back to front office, and the simple failure to start with a fair customer outcome in mind when designing new products have led to the entirely predicable materialisation of Conduct Risk, albeit with unexpected levels of impact for those firms involved. 

Following the lens of regulatory expectation, including the likely introduction of a Duty of Responsibility through the SMR regime, we can see that such 'simple' failures are likely to have very significant personal impacts for those ultimately accountable in the not too distant future.

At AG we are well placed to help you understand and mitigate your Regulatory Risk, guiding you with an industry leading level of Legal and Compliance Financial Regulation expertise, and in my case, a little humble pie.