The “mega” forex fine and its cost to corporate reputation

Leaps forward in the quantification of reputational impact are making a compelling link between conduct and reputation. Pioneering research by Peter Mitic, head of operational risk methodology at Santander, has begun to quantify the “price” of reputational events on a business.

This has an important implication for the “mega” forex fines announced on 20^th May 2015 by US and UK regulators: The full cost of a fine is not just borne out by penalties from the regulator but the eventual financial costs stemming from the reputational hit on product sales or the price the firm can command for its debt. In terms of bottom line, the impact of a reputational event matters.

Crucially, the time lapse between a present event and the consequent financial losses or gains presents a window of opportunity. The window may be open for a matter of days or several weeks or months depending on the event, but ultimately behooves opportunity maximisation over risk mitigation or frantic firefighting. During this “grace” period the amount of resources given to managing the issue can be determined by a clear awareness as to how the business’ reputation is impacted and how this compares with its peers.

For example, in the context of forex “mega” fines, live alva data shows UBS and JP Morgan are faring better than peers since the news hit the press on 20^th May. A case study analysis of the data indicates clear areas of differentiation between the two banks versus competitors in terms of media coverage. This in turn can provide insight into how other banks might “catch up” and take action during the window of opportunity.

– Joel Thompson