Looking at Rogue Trading From the Clinical Psychology Point of View

Date: Tuesday, February 5, 2008
Author: Malcolm Cheshire, Riskcenter.com

In the wake of yet another rogue trading scandal, it is a little tempting for financial institutions to introduce another round of stringent risk management controls; yet, such mechanistic measures may actually become counterproductive.

This is an example of what many clinicians refer to as `attempted solutions` that compound rather than address problems by creating barriers wherein bridges should exist. In order to effectively facilitate the health (that is the physical, psychological & social well-being) of their patients clinicians must look beyond mechanistic interventions that simply address presenting symptoms; rather, they must strive to build bridges by developing effective relationships with their patients.

An effective relationship is based upon the following:

• CONGRUENCE … dialogue that is two way, open, genuine and frank.
• EMPATHY        … having regard for both facts and feelings.
• RESPECT        …  having an unconditional positive regard.

Jerome Kerviel was clearly a cryptic and secretive individual and one wonders as to what type of relationship existed between him and his manager and indeed to what extent, if any, the managers and executives of Societe Generale embraced the importance of human dynamics and relationships.

Clinical supervision is a process utilized by clinicians of all levels in order to promote insight and a greater understanding of the challenges that may be posed by:

• The patient
• The patient's illness
• The effects of the aforementioned on the effectiveness of the clinician

The key to unlocking these challenges is through meetings, either in a group of peers or via a 'one-on-one' meeting between a junior clinician and a more experienced manager. Both types of meetings are based on the aforementioned tenets of congruence, empathy & respect and the aim of developing a much more competent, knowledgeable and responsible practitioner. 

Supervision, or 'SuperVision', is a process that can be readily adapted for the trading environment and can effectively co-exist with prevailing risk management controls. There may well be resistance from established traders who see supervision as either a challenge to their authority and/or an intrusion into areas hitherto regarded as private; however, the potential benefits for traders, managers and the organization, is a trading operation that is more cohesive... more resilient and ultimately more effective.