Société Générale |
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There is nothing like a whiff of a financial crisis, to inspire technology vendors to espouse such pearls of wisdom, which go something along the lines of, 'Well if they had implemented such and such a piece of software, that does so many millions of risk calculations per second, then they would have been able to calculate their real risk exposure much earlier on and perhaps prevented such a crisis.' Can technology really overcome the financial markets' overwhelming desire to not only make money, but to behave like a pack of herd animals converging on a tasty corpse. With risk management and Basel II supposedly at the top of the agenda (well at least it is at the top of the regulators' agenda), does any amount of technology and advanced risk measurement approaches really make a difference, or have recent events merely provided the stimulus that tipped over an already precarious house of cards? Confidence in banks, particularly those that were considered to be financial heavyweights that could survive almost anything, including a nuclear holocaust, is at an all time low, and recent events have exposed some unsightly cracks. Take for instance, the announcement by Société Générale that it had uncovered $7 billion of losses caused by a rogue trader dealing in European stock futures. Sound familiar? Wasn't there a guy called Nick Leeson of Barings Bank who lost approximately $1.5 billion in 1995 in rogue trades? This fraud highlights the continuing lack of controls at some major financial institutions. The lessons of the Nick Leeson and Barings case in 1995 appear to have been forgotten by some. The scale of this clearly surpasses that fraud and is truly shocking. There was much "soul-searching" and review of procedures at financial institutions following the Barings' incident, and that procedures were tightened in a number of instances. It is hoped that the control procedures adopted a decade ago by the banking sector are working and being regularly reviewed, but there will undoubtedly be some very nervous senior people in the industry today. Interestingly, perhaps what both incidences highlight is the ability for someone with detailed knowledge of a bank's control systems to override those very systems put in place to prevent such an incident from occurring. It reminds me of a comment one compliance consultant made not so long ago, that banks tend to focus more on external threats as opposed to internal threats. The question to be asked of course is, would any amount of sophisticated risk management techniques and real-time data management technologies have uncovered or even been able to prevent someone using their knowledge of a company’s security systems to conceal fraudulent positions? The answer of course is, there must be continued efforts to ensure that controls are monitored and modified to ensure they are effective. As in the Barings case, simple following of control procedures does appear superfluous to many managers but in the end they all play a part in the overall controls required for financial transactions and indeed, any transactions. Are you confident your controls are effective? We have the professionals who are able to assist you in your quest for effective controls - give us a call Contact us to discuss your requirements Phone 07 32681838
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