Where Do We Go Now?
Stuart Jones, Jr.

In the wake of the Wirecard meltdown, if there was ever a time to highlight the importance of understanding and tracking non-financial risk it is now.  Since our founding at MIT, Sigma Ratings has been sounding the alarm on the importance of these rather “hard-to-model issues” and pioneering a new standard by which to quantify and capture what is clearly an open space that marries domain expertise, big data and cutting edge technology.

In many of the most recent scandals, the risk indicators were hiding in plain sight.  Were they ignored due to greed?  Or perhaps, were they simply not factored into the analysis of investment and credit teams?  In the case of Bernie Madoff, the use of an unknown auditor was among the red flags hiding in plain sight. Whatever the case, someone is holding the bag now for billions in lost value, a theme that seemingly continues to repeat itself in the financial services space and other highly regulated industries. 

It is indeed an interesting moment.  In the case of Wirecard, not only is the former director of FinCEN involved in risk and integrity and now as interim CEO, but you have a credit grade rating from Moody’s and multiple audits and forensic reports from the Big 4.  All of which is neatly detailed on the website under a “transparency” tab and by viewing the timeline catalogued by reporting by the FT.  It also poses questions for ESG, as Wirecard was among the most highly rated among Germany’s major equity listings.  

So how do we change this cycle? 

Ultimately, it starts with the people.  Afterall, any institution is ultimately only as strong as its people.  It is this fact that has given us the rise and fall of so many great companies through history and more specifically in the last 20 years.  This week ING took an important step, appointing Steven van Rijswijk to CEO.  He previously served as CRO and brings a new mindset to the equation and one that may serve as a harbinger of things to come.  To wit, Sigma  reported on Facebook’s Libra naming Stuart Levey and Bob Werner as CEO and General Counsel respectively.  Both are long-time risk executives, having served previously in both government and the private sector.  

Hopefully we will see more of this and will also see the adoption of technology to increasingly “get-in-front” of risk.  Time will tell, but one thing is certain: times have changed.

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