French bank Societe Generalehas lost
£3.6bn followingunauthorised activity of a rogue traderwho covered up fraudulent activity as a result of his
understanding of the bank's fraud control systems.
Paris-based Jerome Kerviel used his knowledge of automatic
checks, which are carried out on trades to check they are
legitimate, to avoid being found out. He risked billions by betting
on future trends in the stock market.
The failure to monitor fraudulent activity of this scale from an
employee highlights the need for banks to constantly monitor and
upgrade their fraud systems.
"Aided by his in-depth knowledge of the control procedures
resulting from his former employment in the middle office, he
managed to conceal these positions through a scheme of elaborate
fictitious transactions," said a Societe Generale statement.
Ralph Silva, analyst at TowerGroup, said a fraud of this scale
should have been spotted by technology systems which have checks
and balances build in.
He said a combination of checks not being enforced and the fact
that monitoring software quickly becomes out of date can open banks
up to fraud. "Software is always behind fraud and you have to
constantly update it," he added. "Traders and IT staff work closely
together in investment banks and in some cases checks and balances
are turned off to enable a particular trade to go ahead."
He said the Societe Generale fraud reinforces the need for banks
to ensure that the rules which are built into technology are
enforced and that technology is up to date.
Steven Philippsohn, head of fraud at legal firm PCB, said the
fact that an individual in a relatively low ranking position could
do this, highlights a failure in fraud detection systems.
"You do not have to be a rocket scientist to commit a fraud like
this and the monitoring technology is clearly not working in
Societe Generale's case," he said.