Wall Street Mulls Naughty List For Ethically Challenged Bankers

Bankers’ misdeeds would be cataloged, by name, on a private registry for hiring managers under a proposal that’s gaining traction as Wall Street firms struggle to restore reputations damaged by the financial crisis and the Libor and foreign-exchange scandals.

When traders or bankers leave a firm, any instances in which they’ve violated the firm’s ethics or conduct rules would be listed on a central database, allowing prospective employers to see their records before deciding whether to hire them. The concept, promoted by Federal Reserve Bank of New York President William Dudley following a similar plan in the U.K., is aimed at stopping offenders from moving easily between banks.

“We can see a fair number of people who have been bad actors who have recirculated at institutions and created havoc wherever they have gone,” said H. Rodgin Cohen, who has represented many of the largest U.S. banks as senior chairman of Sullivan & Cromwell LLP. The main problem is employees who have been dismissed or covered their tracks by going to another firm “one step ahead of dismissal,” he said.

Closed-Door Sessions

Bankers and regulators discussed the idea in closed-door sessions during a New York Fed conference last month on culture and behavior in the finance industry. Several participants argued for a searchable database and debated whether it should focus on the cause of an employee’s departure or also include “official warnings and reprimands that occur during the course of employment,” according to a summary of the conference released by the regulator.

Currently, a hiring manager can use background checks or the Internet to see whether a job candidate has an arrest record or has been publicly disciplined by regulators. But violations of a previous employer’s internal code of conduct are usually invisible to the outside world.

Panelists and moderators leading the discussions included executives from Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley, JPMorgan Chase & Co., Deutsche Bank AG and UBS AG. In his closing remarks, Dudley encouraged the industry to pursue a registry.