Rogue trader: How UBS systems failed to stop a £1.3bn loss
Were basic management systems unable to spot huge anomalies?
By Leo King | Computerworld UK | Published 16:09, 16 September 11
It is a standard expectation for investment banks to have continual monitoring of network activity and applications, with a risk management system analysing the data, he explains. That system would highlight “activities approaching certain predefined thresholds, or of an anomalous nature and requiring further investigation”.
Brian Anderson, chief marketing officer at IT security supplier BeyondTrust, says it is time for investment banks to improve management and implement more thorough monitoring practices. They also need “to think more critically about how existing implementations of key system monitoring tools can be better used to track user behaviour”.
Observers have been speculating as to the potential reasons why Adeboli was able to lose so much money. The problems at UBS “suggest that the banker has been controlling trading accounts to which he should not have had access”, says Philip Lieberman, president at security firm Lieberman Software.
“Clearly there was a problem with segregation of duties and the need for ‘dual-controls’ as well as attribution. This sounds a lot like they did not have any type of suspicious trading analysis software in place. The sad part is that all this technology exists," but UBS may have chosen to save money on software and security to the detriment of its shareholders, he said.
Clay at IDC states that a combination of trade desk supervisors, and risk and compliance managers, should watch the systems for warning flags, and call for dangerous trades to be pulled off the books.
“Managers need to be watching this carefully and to have the authority to stop things,” he says. “If any sort of dispute occurs about whether there should be a stoppage then it should be escalated up the chain, as far as the chief executive if necessary. The board needs to have a clear understanding of the risks being taken.”
Societe Generale rogue trader Jerome Kerviel, who ran up €4.9 billion losses in 2008, had argued that he was actively encouraged to take risk, a point refuted by that bank.
In spite of that and other incidents, a culture of high risk appears everpresent among investment banks, in spite of the serious consequences of dangerous trading before the credit crunch, analysts maintain.
“We are sceptical as to whether the culture has really changed at all,” says Clay. “Maybe the change is simply superficial.”
