The crazy world of finance - le rogue trader the Che of our times
| 10 serious questions to Société Génèrale’s (SocGen) top management |
| The risk management and controls were apparently flawed and worse, warning signals were ignored such as when Eurex derivatives exchange raised the alarm last November over trading by Jérôme Kerviel |
| This case indicates similar internal control and corporate governance issues that caused the dismissal of ZKB Chief Executive Officer - CEO Hans Vögeli in May 2007 |
We have discussed this issue previously here:
Stocks plunge worldwide makes a review of bankers’ remuneration packages necessary
6 Banking bail-out - Hope Alliance - the unfair part of the Paulson mortgage rescue plan
5 - ZKB - failure of corporate governance
Mr Jérôme Kerviel was preliminarily charged with
1) breach of trust
2) falsifying and using falsified documents
3) breaching IT controls access codes
SocGen claimed that Mr Kerviel took unauthorized positions on European future markets for more than a year, leaving the bank with exposure of Euro50bn. The lender said he covered his tracks with fake hedging whichh internal controls failed to detect. Eurex warned SocGen over trade positions as early as November 2007. Bafin, the German regulator confirmed the Eurex alert to French market regulators on 2008-01-28.
what questions should be asked to make sure regulators are heading in the right direction?
| 10 serious questions that will implicate senior managers at Société Génèrale (SocGen) | |
| 1 | Who set the balance between the bank’s priorities on making a profit and having serious controls? |
| 2 | What was the balance between its priorities on making a profit and having serious controls? |
| 3 | Who appointed and oversaw the persons who run the trading departments and set their objectives? |
| 4 | What were these objectives? |
| 5 | Was the level of authority for the person running the risk management functions commensurate with their responsibilities - please explain why yes or no? |
| 6 | What are the check and balances used for doing these types of trades and do these meet best practice? |
| 7 | What authentication mechanisms are used to record and archive information about who authorized what trade/hedge/fugure contracts and how was it done for each transaction executed.For instance, who used which PC terminal to gain access? When did she initiate which transaction? Who approved, when and how? |
| 8 | What controls are used to make sure that every transaction ist authenticated properly BEFORE it goes into the processing pipeline?For instance, stealing a person’s password is one thing but it will not suffice, unless one can authenticate the transaction itself by having the token required? |
| 9 | How often are security policy and rules violated by traders? |
| 10 | What does SocGen do in cases of these violations of policy and/or best practice?Please provide documentation. |
If management is found to have been directly culpable in a lack of controls, Daniel Bouton - Société Génèrale’s (SocGen) chairman and others should resign without delay.CyTRAP Labs’ take on this issue
It cannot be that the above challenges are not being dealt with by each financial institution of SocGen’s calibre.
Current investigations at SocGen by French Authorities will, hopefully, shed some light on these issues. But similar questions must be answered with UBS that is rumored to announce another huge write-off due to the mortgage crisis. Some people fear that its shares might drop even more toward Sfr. 35.oo or so ….. the last few days investors’ weariness with the bank’s risk management have resulted in huge sell-offs.
Yes, bonuses in London survive the credit crunch, if only, perhaps, to sing its swan song. Nonetheless, huge rewards mean taking responsiblity for improper risk management.
And while Mr. Ospel from UBS continues to believe he cannot be replaced at the helm, nobody is ….. so
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Also of interest
- 3 - ZKB - B - failure of internal controls - personal greed
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