Commentary on recent SocGen annoucements

Hmm. Time and time again, when investment banks have these kind of personnel issues, to put it mildly, you always one of two responses:
1. This was an isolated instance and controls have since been put in place to make sure this will not happen again.
2. The individual concerned was a loose cannon/unstable/acting on his own and this cannot happen again.

Commentary: if 1., then why were the controls so rubbish, as an esteemed ex-colleague of mine would say. Once answer is, in part, the fact that workstation activity is not generallty monitored: ie what the traders are doing at an application level. With no such monitring, baseline trading patterns cannot be established so deviations cannot be discovered, or even predicted.

From an application and system level the lack of effective instrumentation means that it is almost impossible to spot abberant trading patterns.

From an organisational level, if the supposed fraud was performed on multiple applications, developed by multiple application teams, the independent nature of most investment banking development organizations, even within, for example, a Fixed Income group, will mean that there are no common application instrumentation and correlation tools. Given the customers of these groups (ie the traders) will always put extended functionality before instrumentation every time, budgets are never created for such events.

Result: the best compliance teams are going to be handicapped if much of the information indicative of irregular trading simply does not exist....

Commentary: if 2. then this is the typical trick of 'playing the man, not the ball'. A simple repost to any such comment is 'Well, this person was apparently [insert punishing adjective here], and still managed to take the bank (front/middle/back office, compliance, management team etc) for billions of [insert currency here], I would hate to find out what a really switched-on person would do'.

What I find really disturbing is that although it is difficult to guard against insider fraud, it should be thought of as impossible. Cases such as Enron, Worldcom etc etc have shown that typically [and not saying that this is the case here] any such major jiggery-pokery was sanctioned at a senior level, and the person 'caught' is normally the fall guy.

Of course, the conspiracy theorists would claim that a rival organization planted a sleeper in the bank and then waited for the bomb to go off.