On Tuesday, the Financial Services Authority (FSA) published Market Watch, a report that analyses firms’ systems and controls processes following the Société Générale (SG) ‘rogue trader’ incident.
Since SG's announcement on 24 January 2008, FSA supervisors have spoken informally to approximately 50 trading banks in London. According to the FSA, many have already put in place reviews to identify and correct gaps that may exist in their trading controls.
Market Watch highlights the measures firms should consider when reviewing the systems and controls which protect them against 'rogue trader' risk. In the current volatile market environment, with the risk of inappropriate practices quickly leading to significant losses, early discovery and remedial action are even more important than in more benign conditions, notes the report.
Amongst other areas, Market Watch analyses front-office culture and governance, stressing the need for high-quality management information, elementary IT precautions such as systems restrictions, and front-office staff being adequately segregated from middle- and back-office functions.
"We are encouraged that many firms in London with significant trading activities are working to satisfy themselves that their basic controls and governance surrounding trading, risk management and settlement are effective," comments Sally Dewar, MD, wholesale and institutional markets, FSA. "But the risks remain, and we would urge firms to remain vigilant on unauthorised trading, especially in current market conditions," she adds.