Behavioural risk management is a framework for applying psychological theories and concepts to the practice of risk management. Psychological issues lie at the very heart of risk management, influencing both judgments and behaviours. There is good reason to believe that those in the middle office and those in the front office agree on one thing: they have very different personalities. These differences are important, lying at the core of the relationship between middle office risk managers and the front office traders they monitor.

Front office, risk and compliance and personality

The nature of personality differences emerges quite starkly in Joris Luyendijk’s book Swimming With Sharks, which he based on a blog he wrote for The Guardian newspaper. Notably, Luyendijk’s source material comes from interviews he conducted with people working in London’s financial firms. In order to ferret out the way that traders and risk managers perceive themselves, Luyendijk asked some of his interviewees what animal they thought most closely captured their personalities.

Most of those in the front office described themselves as predators. Some said wolves working in packs, prowling for clients. Some said tigers, aggressively helping their banks to be as profitable as possible.

In contrast, some in the middle office described themselves as dogs that are loyal to their owners (management) and bark at people when they behave inappropriately. Others saw themselves as beta male chimpanzees, whose purpose is to help the dominant male chimpanzee achieve his goals.

Especially interesting is how traders and risk managers view each other. Traders who described themselves as tigers used a ‘zoo keeper’ analogy, saying they felt caged in by the middle office. Those in risk and compliance noted that traders viewed them as deal killers and show stoppers, while they likened traders to rock stars and rain makers.

Apr-Jun 2016 Issue

Santa Clara University