by Patrick Jenkins
A former US government counter-terrorism expert and an emerging markets healthcare lawyer are poised to launch a new rating agency for conduct risk, as the world’s banks struggle to avoid doing business with terrorists, drug dealers and other organised criminals.
In a twist on the credit ratings of Standard and Poor’s and Moody’s, Sigma Ratings, co-founded by former US Treasury official Stuart Jones and lawyer Gabrielle Haddad, is this month set to publish its first batch of ratings, focused on the conduct of 500 financial groups in 16 emerging markets, from Saudi Arabia to Panama.
“This is the world’s first business integrity rating agency,” said Mr Jones, whose time at the US Treasury combating terrorist finance included tours of duty in Afghanistan and the Middle East. “These days compliance, conduct and regulatory risk are just as important as credit risk.”
David Scola, head of financial institutions at Barclays, which helped fund Sigma, said the bank was attracted by the start-up’s aspiration to be the S&P of anti-money laundering. “[This] company that could eventually eliminate the need for outdated and inefficient bilateral due diligence in favour of a ratings approach analogous to the role the rating agencies perform for credit,” he said.
Sigma uses artificial intelligence to sift data from a range of publicly available information and synthesise it into a zero-to-100 score, which translates into a business integrity rating ranging from AAA down to C, similar to the scale used by the credit-rating agencies.
Aside from global banks, emerging market investors and regulators have shown a keen interest in the ratings service, Sigma said.
“Corruption and the erosion of trust in many of these countries are among the biggest challenges banks face doing business there,” said Ms Haddad, who last week testified before the US House of Representatives’ financial services committee as an expert witness on counterparty risk.
Sigma is launching with research on 500 emerging market financial groups, including the local branches of global banks, although that number is set to grow to several thousand by the end of the year. The initial focus is on correspondent banks — small, regional lenders that interact with clients on the ground and then plug into the global groups. Regulators have become increasingly concerned that such relationships can facilitate money laundering.
Sigma recently closed a $2.4m financing round, including a small equity injection from Barclays via the bank’s fintech “Accelerator” programme.
Barclays has spent the past 10 years trying to clean up its own operating culture following a sequence of scandals.
Former chief executive Antony Jenkins instituted a mantra of focusing on “Respect, Integrity, Service, Excellence and Stewardship” — and emblazoned the values on vast acetone blocks in the lobby of the bank’s headquarters.
The bank, which has 1,500 correspondent banking relationships around the world, expects to be one of Sigma’s early clients, potentially alongside the likes of JPMorgan and HSBC.
Some of the world’s biggest banks have spent billions of dollars settling corruption allegations with justice authorities in recent years. HSBC paid nearly $2bn and BNP Paribas nearly $9bn to the US authorities over accusations of sanctions busting and facilitating money laundering.
Barclays was fined £72m by UK regulators in 2015 over its “poor handling of financial crime risks”. A year later, the chief risk officer of its French operation accused it of money laundering failures.