FSA ready for surge in fraudulent trades


FSA ready for surge in fraudulent trades

Karl Flinders

The Financial Services Authority has said it is confident that its anti-fraud monitoring system will cope with an expected rise in fraudulent trading as economic uncertainty mounts.

The FSA warned this week of a heightened risk of trading abuse in its Financial Risk Outlook for 2008.

"Increasing financial pressures on firms, employees and consumers could increase the motivation of some to commit financial crime, including market abuse and fraud," it said.

The warning came in the wake of Société Générale's £3.5bn loss at the hands of a rogue trader, Jerome Kerviel.

Dario Cristini, manager of the transaction monitoring unit at the FSA, said the organisation had planned for increasing volumes of trade and was confident its fraud monitoring system could cope with more illegal trades. "The system has headroom to cope," he said.

The FSA upgraded its Surveillance and Automated Business Reporting Engine (Sabre) to Sabre II in June this year to provide it with real-time alerts to potential financial abuses.

Sabre uses Sun Ultrasparc 4+ servers running SAS Enterprise Intelligence Platform, AMD Opteron servers running Progress Software's Apama for Alerting, and Oracle and KX Systems' KDB+ relational databases.

The FSA's Sabre system will face further pressure following advances in trading technology that have pushed up trading volumes at traditional exchanges and underpinned the creation of new exchanges.

Bob McDowall, analyst at TowerGroup, said volumes traded had increased but that the average size of trades had declined, making unusual events harder for Sabre to spot.

"The surveillance system clearly has more challenges in a less benign environment with greater volatility," McDowall said.

Lee Hodgkinson, CEO at trading exchange Virt-x, said the FSA and other regulators across Europe would struggle to keep technology abreast of a growing market.

"Technology will increase volumes and venues and that will be a challenge for regulators, who will have to invest in technology to be able to carry out their regulatory responsibilities in line with the industry," Hodgkinson said.

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