One of the largest losses in history from unauthorized securities trading involv

Question

One of the largest losses in history from unauthorized securities trading involved a securities trader for the French bank, Societe Generale. The trader was able to circumvent internal controls and create over $7 billion in trading losses in six months. The trader apparently escaped detection by using knowledge of the bank's internal control systems learned from a previous bank-office monitoring job. Much of this monitoring involved the use of software to monitor trades. In addition, traders were usually kept to tight trading limits. Apparently, these controls failed in this case. What general weaknesses in Societe Generale's internal controls contributed to the occurrence and size of the losses?

Explanation / Answer

responsiveness was insufficient for the implementation of the corrective actions identified as necessary by internal audit bodies.difference between the growth in the means (including information systems) available to control and support services and the very strong growth in transaction volumes within the equities division; lack of certain controls liable to identify the fraudulent mechanisms, such as the control of the positions' nominal value or of the transactions used by the perpetrator of the fraud in order to conceal his positions; fragmentation of controls between several units, with an insufficiently precise division of tasks, lack of a systematic centralization of reports and of feedback to the appropriate hierarchical level; priority given to the correct execution of trades, which appears to be the primary concern of Back and Middle Offices, in the absence of an adequate degree of sensitivity to fraud risks;

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