Pressure to perform can lead to abuse of IT in finance houses


Pressure to perform can lead to abuse of IT in finance houses

If ever a reminder were needed that technology is not context-free, the case of Société Générale trader Jérôme Kerviel has provided one.

The 31-year-old trader from a small town in Brittany had worked his way up from the back-office to the middle-office at the bank, and decided to put his previously acquired knowledge of IT controls into action. Although his job was to make opposite bets on market directions, he actually placed one-way bets and covered his tracks with fake electronic messaging. At the height of his success he was £1.6bn up. Peculiar, perhaps, that he was not caught at that stage.

The case is reminiscent of British rogue trader Nick Leeson, who also worked his way up from the bottom at blue-blooded Barings. He also put his back-office knowledge to his temporary advantage on the Simex derivatives exchange in Singapore.

Leeson brought Barings down while his patrician bosses played tennis. Société Générale will not suffer a similar fate. However, it is not alone among French business institutions in being dominated by the country's notoriously elitist Grandes Écoles system. Not for Kerviel the stratospheric salaries and gargantuan bonuses of the top traders.

Kerviel sought to impress Société Générale's elite with big wins facilitated by the abuse of IT. However, IT professionals in investment banks in London are often under similar pressures to win the favour of traders. And so, although banks can use exception profiling to identify anomalous trading activity, traders sometimes demand that IT overrides such systems.

Technology in and of itself cannot counter excessively risky, not to say unauthorised, trading. Moreover, IT can enable and accelerate such activity, as this case shows. The technologies of control are bound to lag the technologies of making money.

However, IT as a profession could stand up for a culture of honesty among the "big swinging dicks" of the financial markets.

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This was first published in January 2008


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