I was invited to contribute to a recent article in The Banker revisiting the financial sector fallout arising from the Epstein episode and the wider lessons it highlights.
At its core, the missteps of several major banks did not arise from a failure of rules or established processes. The mechanisms for enhanced due diligence, escalation and oversight were, in most cases, already in place. The issue lies in how those mechanisms were applied and, critically, how commercial priorities, hierarchy and judgement interacted at critical moments.
It has always been the case that the development of banking relationships, particularly with high-profile or influential clients, is driven by multiple factors such as revenue generation, the depth of the relationship, the client’s standing and the anticipation of future business. When weighed alongside these considerations, reputational risk may not be fully reflected in the final decision and compliance and risk functions can gradually move from acting as gatekeepers to serving simply in an advisory capacity.
What transpired in the cases quoted in the article serves as a reminder that governance failures rarely stem from a single, flawed decision. More often, they arise through a sequence of individually defensible judgements which, taken together, become untenable. Oversight must be capable of acting decisively when it matters most and scrutiny must be applied consistently, regardless of status or profitability.
The article highlights the presence of institutional blind spots within even the most established organisations. The real test going forward is whether these will be adequately addressed in the future or simply managed until the next cycle.
https://lnkd.in/gHKVqeib
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