Reputation Risk in financial services

One big time broker who is also a CA….was involved in a fraud case. He went to jail – as did his father. Father-in-law was lucky he was spared.

The father told one of my friends: “I do not know what my son did in life, but thanks to him I saw the jail”. For obvious reasons I am not naming anybody, but I guess about 100 people will know who I am talking about.

What is reputation risk? How do you evaluate it and can it be insured?

Evaluating it is almost impossible for an actuary. Do I want to earn money at the risk of going to jail. For many people I know the answer has to be no. Do I want to be on the board of a company where one of the directors go to jail.Do I want to be an auditor of a company where the director goes to jail – Bandra or Hyderabad!! Do I want to work for a company where the directors and auditors have not ensured the systems are in place? Do I…the list can be endless is it not.

My answer is no, but each person has to answer that for himself / herself. A lot of so called reputed people put their names at risk by being on boards of companies in the financial services business. Even in this business the dark underbelly is the brokerage business. Frankly reputed bankers, Chartered Accountants, etc. should  be careful before they lend their names.

Hopefully Indiainfoline will come out of the Bandra case without much hurt, but Venkatraman (Mani Venkataraman as per the press) will have to ensure that the other directors – I do not want to name them – are not affected.

Reputation risk for a practising C A is almost unlimited.

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One Response to “Reputation Risk in financial services”

  1. It is not so simple. In this case Indiainfoline recruits people who have to bring 5 times their salary as brokerage revenue. Clients make money and enjoy it, but when they lose they blame the organisation. This case has been settled, she has been paid Rs. 18 lakhs including interest of Rs. 5 lakhs. However what about the profits that clients make. If you run a brokerage business these risks do exist. I do not think Venkatraman did anything wrong. Just that the client did not understand what was happening.

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