The report was the result of an investigation convened last May after Goldman had to settle a case with the Securities and Exchange Commission for $550m (£352m). It promises to move responsibility for coming up with complicated financial products, an issue at the centre of the SEC case, to the Investment Banking Division as opposed to the Securities Division.
The recommendations, which have already been signed off by the board, also say that the bank must adopt a new attitude: “Our approach must be: not just ‘can we’ undertake a given business activity, but ‘should we’”.
The report surveyed 200 of Goldman’s clients through an independent consultant, with the result that “clients said that, in some circumstances, the firm weighs its interests and short-term incentives too heavily”.
In response, Goldman promises to disclose more clearly any possible conflicts of interest when advising, underwriting and managing wealth.
The bank will also add a new section to its regular earnings reports detailing revenues earned from investing and lending its own money.
Applying this principle to its most recent updates, the bank revealed that 30 per cent of pre-tax profit, or $2.76bn, in the first three quarters of last year came from its own trades.
AT A GLANCE | GOLDMAN SACHS REPORT
The bank promised to break down its reporting into four categories instead of three, with the new segment, “Investing and Lending”, to include “both direct investing and investing through funds”.
Responsibility for the creation of certain complex financial products, will be transferred away from traders involved in underwriting and will instead be done by investment bankers serving clients.
CONFLICTS OF INTEREST
For deals on which Goldman is the underwriter, brokers and traders will be prohibited from “expressing a view” on paper for 30 days. However, they will be allowed to speak about it.
The report recommends toughening up requirements for creating “information barriers” between its various divisions, requiring that senior managers sign them off, so that clients are more often told if the bank is involved in numerous aspects of a particular deal or investment.
Clients will be categorised by “sophistication”, with non-professional investors receiving more explanation from the bank.