Life After Chase: Peter Hughes

Visiting Research Fellow at The York Managment School

Peter Hughes, a 27-year veteran of JP Morgan Chase, is the Managing Director of FIG’s UK based operation, Financial Intergroup (UK) Ltd. A Fellow of the Institute of Chartered Accountants in England & Wales, he is currently a Visiting Research Fellow at the York Management School, University of York (UK), leading research into next generation risk management and accounting systems.

Positions held by Hughes at Chase between 1977 and 2003 included Regional IT Audit Manager (Central Europe), Regional Audit Manager (South America), Country Operations Executive (Brazil), Country Senior Financial Officer (Brazil), Country Chief Operating Officer (Germany), Acting Country Head of Treasury & Trading (Germany), Regional Head of Finance Shared Services (EMEA) and Head of Risk Management – Global Shared Technology & Operations. He was a Member of the Board of Banco Chase Manhattan SA, Brazil, Member of the Supervisory Board (Aufsichtsrat) of Chase Leasing & Co KG, Germany and Branch Manager of The Chase Manhattan Bank NA in Frankfurt. For a number of years he represented JPMorgan Chase on the British Bankers’ Association’s Op Risk Advisory Panel.

Hughes is the author / co-author of a number of practitioner papers including “The Direct Measurement of Exposure and Risk in Bank Operations” published in the Journal of Risk Management in Financial Institutions and, with Allan D. Grody and Robert M. Mark, “Operational Risk, Data Management & Economic Capital” published in the Journal of Financial Transformation, Cass-Capco Institute Paper Series on Risk. He was also featured in the industry best-selling book Operational Risk – Practical Approaches to Implementation, published by Incisive Media, and is a contributing author to Risk Management in Finance: Six Sigma and other Next Generation Techniques, published by John Wiley & Sons.

We recently conducted a Q&A with Hughes about his mentoring and research activities:

Given that you're based in Poole, how did you get involved with a university up north in York?

That’s rather a long story. My office is in Poole, which is a few miles from JPMorgan Chase’s technology hub in Bournemouth on the south coast of England. I relocated there in 1994 from Chase Germany where I was COO to set up a regional Finance Shared Services Centre. I left Chase in 2003, formed my own company and worked as an independent consultant and trainer. During that time I wrote a number of articles for trade publications, primarily on risk management, and it was through one of them that I came into contact with Allan Grody, who is an Emeritus Professor of Risk Management Systems at New York University. We discovered a shared view in how some of the problems faced by the financial services industry in the area of enterprise and operational risk quantification could be solved. It turned out to be the start of a collaboration that is now in its seventh year.

When the financial crisis hit in 2007, Allan and I concluded that a primary cause was the divergence between risk management and accounting systems that materialised largely as a consequence of the creation of derivatives and the attendant bookkeeping anomalies. So we started work on the conceptualisation of a framework in which risk management and accounting systems could converge and dubbed it ‘Risk Accounting’ .

We took our solution to the Institute of Chartered Accountants in London to see if we could stimulate interest in our work. We met with the Research Manager who suggested that we present our ideas to their Research Advisory Board, but her concern was that such presentations are typically made through academic institutions. To overcome this particular issue, she introduced us to Prof. Steve Toms of York University, who was already well known to the Institute for his work in the area of accounting for risk. He saw the potential value in Risk Accounting and became one of the team. An invitation for me to take up a position as a Research Fellow at York soon followed.

As a Research Fellow are you also doing some research of your own?

Allan and I (with others) have collaborated on a number of research projects in the area of bank regulation, risk management, data management and capital management. Particularly noteworthy is our work in the area of Global Identification Standards otherwise known as Legal Entity Identifiers (LEIs). It was in the aftermath of the Lehman Brothers’ collapse that regulators became aware of what industry practitioners had known for some time: A single view of banks’ consolidated and aggregated counterparty exposures was virtually impossible to obtain due to the absence of a system of standardised industrywide legal entity identification codes. This condition severely impedes the ability of regulators generally to observe the build-up of systemic risks in global financial systems.

Our research paper in this area has been presented to the Office of Financial Research in the USA and the G20 Financial Stability Board in Basel.

Do you work with the students in addition to their thesis advisors? Are these research projects to result in theses?

The students assigned to me are directly supervised by a full-time member of the faculty, usually a department head. I generally work with Masters Students who are required to present theses on their chosen subjects whereby they all seem to have the same complaint – the limited amount of face-time they are able to get with their supervisors. Consequently, it is during the critical months leading up to the due dates for their theses that the frequency of my visits to York increases to review, critique and challenge their work and provide guidance, although I’m obviously careful not to give direct input to their theses, and I only get to see the finished article after it has been formally submitted.

Are these post-graduate students working on doctorates or what?

I mainly work with Masters Students although I did some work with a PhD Student who developed prototype Risk Accounting software for one of our projects. I also led a seminar on the status of banking and bank regulation attended by members of the faculty and a number of PhD students.

Do you guide them in choosing subjects?

The subjects for their theses can materialise through a number of different channels. For example, in my first year at the university, Steve Toms directly sponsored research into Risk Accounting as a result of our meetings at the Institute of Chartered Accountants. The opportunity to work on the project was announced and interested students were invited to submit their CVs. There was an overwhelming response. Another example is a student I’m currently mentoring in Operations Management , who chose Balanced Scorecards as his subject. Generally speaking the choice of subject is more likely to be made with their supervisors than me, but once made we have long and very detailed planning sessions when we examine the various aspects of their chosen subject. At the end of the day I need to be confident that I can add value to his/her research and that the research will add value to the industry.

What do you learn from the students? What do you get out of mentoring?

The most informative aspect for me comes from their literature reviews. I’m invariably impressed at the depth and maturity of insight students achieve via their analysis of academic literature. Last year a student performed a literature review focused on the application of Value-at-Risk (VaR) techniques in Basel capital rules and its limitations. It was a truly excellent piece of work from which I also learnt a good deal. Indeed, he provided the foundation for a soon to be published academic paper on risk exposure and attribution management to which his supervisor, Prof. Kiran Fernandes, as well as Allan Grody, Steve Toms and I contributed. What I get out of mentoring students is the knowledge that I’ve contributed in some way to their achievements. My career at Chase was unusual in that I found myself at the sharp end of a range of diverse functions including audit, operations, finance and risk management – and I even spent 15 months as acting head of treasury & trading in Germany. This left me with a broad base of practical experience which students can draw on to complement their literature-based study and lectures. It’s a formula that seems to work, as the first student I mentored not only graduated with distinction, he was also selected to present his project to the university’s Vice Chancellor.

How long have you been acting as a mentor at York? If over a period of time, do you find a difference among succeeding generations of students -- vis-a-vis interests, concerns, ambitions, preparation, naiveté, focus, concepts of risk, prior education?

My appointment as a Research Fellow was made in 2009, so I have been through two annual student cycles...probably not enough to detect trends in attitudes and outlook. In addition, I tend to interact
only with the students who have been specifically assigned to me, so the impressions I’ve gained may not be representative. Having said that, the students I have come to know well have impressed me with their maturity, ambition and the degree of understanding they achieve within an educational establishment.

This story is of interest in part because CAA is beginning its own mentoring program, but not of students (of course). Have you mentored professionals before? If so, can you describe how it differs from mentoring students?

I suppose it depends on what is meant by mentoring. I would imagine that anybody who manages people also spends time acting as a mentor. Effective managers should have the requisite skills to motivate individuals and teams to achieve great things. Thinking about it, I don’t honestly see a great deal of difference in my approach to managing in a corporate environment and mentoring students at a university. My aim should be the same in both cases, which is to find the right balance between giving sufficient instruction to motivate but not too much that it stifles initiative. Above all, I must be available to provide support and guidance whenever required. My firm belief is that the measure of success as a mentor is in the degree of pride and ownership the mentees have in their own achievements.

Are these students expressing concern about the job market?

Not to me but, once again, my experience in this area may not be representative. The students assigned to me either have their career plans already made or it didn’t appear to be an area of concern perhaps because they are Masters Students with half an eye on PhD courses.

What are you doing now at Financial InterGroup?

My day job is being a consultant and trainer, which I deliver through my company, Financial InterGroup. Most of the work I do is in the area of bank regulation (Basel II & III), risk management with particular focus on operational and enterprise-wide risk, risk-based capital management, including the internal capital adequacy assessment process (ICAAP), and risk-based auditing.