In December 2000 I received an email from the Goldman Sachs press office in New York, nominating the firm for Risk magazine’s “Risk Manager of the Year” award. Central to the pitch was how the Wall Street bank had run a boot camp for its supervisors at the U.S. Securities and Exchange Commission, training them in concepts like value-at-risk and derivatives hedging.

It was a win-win move, both sides told me. Goldman ensured its regulator was up to date with financial innovation and earned brownie points for its efforts. By offering a “light-touch” regime for its charges, the SEC hoped to prevent the securities firms under its purview from basing their fast-growing over-the-counter derivatives operations in London.

I was technical editor of Risk at the time and I remember feeling a sense of wonder at the regulator’s willingness to take lessons from one of the firms it policed. But I could also accept that Goldman was motivated by good citizenship. If derivatives were coming to Wall Street, why shouldn’t Wall Street’s best firm join forces with its watchdog to ensure that everything was done properly? The Risk Manager of the Year Award for 2001 went to “¦ Goldman Sachs.

But the SEC did not realise how innovations like the credit default swap would later transform the markets it regulated. Its mission of ensuring market fairness was to collide head on with new business imperatives driven by the “derivativisation” of the credit market.