Jerome Kerviel, the trader who allegedly lost Societe Generale nearly 5.0 million euros, went on trial in Paris on Tuesday, June 8th. The bank alleges that Kerviel took "massive fraudulent directional positions" in 2007 and 2008, which were far beyond his trading limits.
It is interesting to note that Kerviel was not only experienced on the trading floor, but he also had a background in middle office risk management technology. It may have been this knowledge that enabled him to manipulate the bank's risk controls and thus escape notice for so long.
Still, it is perplexing that fraud on such a scale can go on without detection for so long, even if Kerviel did have an insider's knowledge of the firm's risk management systems. Internal risk controls are not something that a financial firm can take for granted, left to run unchecked or unchanged for months or years.
The detection of criminal fraud or market abuse is something that must happen in real-time, before any suspicious behaviour has a chance to lose a firm money or to move the market. Pre-trade risk management is paramount, with trading limits specified and checked in real-time. Internal controls should be monitored for possible manipulation, again in real-time. The good news is that technology does exist in the form of real-time market surveillance software from companies can analyse data transactions by the millisecond.
Financial institutions need to start looking inward to improve standards, regardless of current regulation. Otherwise the culture of greed and financial gain at all costs will encourage more and more Kerviels.
View all posts from John Bates on the Progress blog. Connect with us about all things application development and deployment, data integration and digital business.
Let our experts teach you how to use Sitefinity's best-in-class features to deliver compelling digital experiences.Learn More
Subscribe to get all the news, info and tutorials you need to build better business apps and sites
You can also ask us not to share your Personal Information to third parties here: Do Not Sell or Share My Info
We see that you have already chosen to receive marketing materials from us. If you wish to change this at any time you may do so by clicking here.
Thank you for your continued interest in Progress. Based on either your previous activity on our websites or our ongoing relationship, we will keep you updated on our products, solutions, services, company news and events. If you decide that you want to be removed from our mailing lists at any time, you can change your contact preferences by clicking here.