FSA publishes commentary on systems and controls, in light of the Société Générale 'rogue trader'
FSA/PN/022/2008
11 March 2008
The Financial Services Authority (FSA) today published Market Watch 25, which focuses on firms' reviews of their systems and controls in light of the Société Générale (SG) 'rogue trader' incident.
Since SG's announcement on January 24 2008, FSA supervisors have spoken informally to some 50 of the largest trading banks in London. Many have already put in place reviews to identify and correct gaps that may exist in their trading controls. Market Watch highlights the measures firms should consider when reviewing the systems and controls which protect them against 'rogue trader' risk. In the current volatile market environment, with the risk of inappropriate practices quickly leading to significant losses, early discovery and remedial action are even more important than in more benign conditions.
Amongst other areas, Market Watch looks at:
Front office culture and governance, in particular are traders encouraged to take two-week continuous holidays, and appropriate segregation of front office staff from middle and back office functions;
The use of suspense accounts;
The quality of management information, both routine and outside normal parameters; and
Elementary IT precautions, such as whether access to systems is password dependent.
Sally Dewar, FSA MD of Wholesale and Institutional Markets, said:
"We are encouraged that many firms in London with significant trading activities are working to satisfy themselves that their basic controls and governance surrounding trading, risk management and settlement are effective. But the risks remain, and we would urge firms to remain vigilant on unauthorised trading, especially in current market conditions."
The FSA will continue to engage with firms on these issues over the coming months and will also maintain its current regulatory dialogue with international colleagues about this incident and the wider issues it raises. Market Watch is not specifically commenting on events at SG and stresses that firms should contact the FSA if they have any suspicions of unauthorised trading.
FSA publishes commentary on systems and controls, in light of the Société Générale 'rogue trader'
FSA/PN/022/2008
11 March 2008
The Financial Services Authority (FSA) today published Market Watch 25, which focuses on firms' reviews of their systems and controls in light of the Société Générale (SG) 'rogue trader' incident.
Since SG's announcement on January 24 2008, FSA supervisors have spoken informally to some 50 of the largest trading banks in London. Many have already put in place reviews to identify and correct gaps that may exist in their trading controls. Market Watch highlights the measures firms should consider when reviewing the systems and controls which protect them against 'rogue trader' risk. In the current volatile market environment, with the risk of inappropriate practices quickly leading to significant losses, early discovery and remedial action are even more important than in more benign conditions.
Amongst other areas, Market Watch looks at:
Front office culture and governance, in particular are traders encouraged to take two-week continuous holidays, and appropriate segregation of front office staff from middle and back office functions;
The use of suspense accounts;
The quality of management information, both routine and outside normal parameters; and
Elementary IT precautions, such as whether access to systems is password dependent.
Sally Dewar, FSA MD of Wholesale and Institutional Markets, said:
"We are encouraged that many firms in London with significant trading activities are working to satisfy themselves that their basic controls and governance surrounding trading, risk management and settlement are effective. But the risks remain, and we would urge firms to remain vigilant on unauthorised trading, especially in current market conditions."
The FSA will continue to engage with firms on these issues over the coming months and will also maintain its current regulatory dialogue with international colleagues about this incident and the wider issues it raises. Market Watch is not specifically commenting on events at SG and stresses that firms should contact the FSA if they have any suspicions of unauthorised trading.
© 2008 FSA