Conflicts of interest within advisory services are not a new concept with long running concern over the lack of dichotomy between management consulting and audit services. Last weeks developments in New York may well set precedent, with a far greater impact than just Deloitte’s staff retention levels, with fresh calls for reform in regulatory consulting.
In a virtually unprecedented move, Deloitte’s Financial Advisory Services Unit and the State of New York agreed to a ban on any new financial services consulting work. This is in light of concerns raised over the firms’ work at Standard Chartered regarding anti-money laundering.
Specifically the investigation found there was a lack of independence from the bank, with confidential information regarding other Deloitte clients being shared with Standard Chartered. A Deloitte partner even admitted that they drafted a “watered down” version of its report to the regulator at the request of the bank.
Deloitte agreed to a ban and a $10 million (£6.4m) fine following the investigation which found that “misconduct, violations of law, and lack of autonomy” were evident. This will have a significant impact on both present and future client base not to mention the ability to recruit and retain staff.
However, perhaps the more interesting results will be those witnessed across the consulting industry. Deloitte are now working hard to reform its operations in order to minimise the conflicts of interest when undertaking regulatory work.
These reforms are being hailed in industry as the first steps in a broader crackdown on financial consulting particularly in eliminating the “I’ll scratch your back if you scratch mine” culture that has been fostered in the consulting industry.
In a statement the New York Governer, Andrew Cuomo, explained the broader implications of these actions against Deloitte;
“The State’s agreement with Deloitte will serve as a new model for reforming the financial services consulting industry in New York as well as across the country,”
One would be naïve to assume Deloitte are the only firm that operates ‘close to the line’ regarding conflicts of interest, however with the volume of regulatory reform in the market and the growing need for transparency in financial services, consulting firms are going to have to radically reform their operations to ensure their survival.