Keep pace with change to tackle operational risk from rogue trading

In the last 20 years, rogue traders across 14 financial institutions have created direct losses of $32bn. The most recent of these, Kweku Adoboli, was convicted of fraud on 20 November 2012 after losing $2.3bn on unauthorised synthetic equity trades. The eye-watering size of losses undoubtedly makes rogue trading the number one operational risk for banks.


But it appears that this is a risk that has slipped down banks’ agendas. They are buried in conduct remediation work that could detract focus from core controls, like system access rights. But getting the basics right is still crucial.


That said, banks have come a long way. Many have introduced technology solutions around trade and communication surveillance for example. Likewise, increased focus on Risk Weighted Assets (RWA) and updated regulation (Dodd Frank, Volcker) have reduced the ability of people to take excessive risk and hide unauthorised positions.


However, the failure of supervisory controls highlighted in the Libor and foreign exchange (FX) scandals suggest that lessons from cases like Adoboli’s may still need to be learned and that the rigour of controls across institutions is still inconsistent.


These top tips should help banks mitigate the risk from rogue trading:

  • Regularly review rogue trading risk assessments and ensure changes to the market and the business are incorporated.
  • Make sure supervisory controls and processes are fit for purpose, adapted to address conduct risk and rogue trading risk.
  • Consider how to incorporate trader supervisory controls into new products and business flows.
  • Ensure rogue trading controls are integrated into newly implemented IT systems
  • Make sure weaknesses in legacy IT platforms don’t give opportunities for fraud
  • Leverage technology effectively to monitor rogue trading risk
  • Design training to change behaviours effectively


If banks don’t address these issues they may find themselves falling below the expectations of the regulators and risk the losses and reputational damage that such incidents cause.


Like armies that prepare for the next war by training in the tactics of the last, banks with controls that haven’t kept pace with change over the last three years may find themselves reacting to a crisis of their own.


Watch our video to find out more.


What’s been your experience of risk to rogue trading? What else do financial institutions need to think about to avoid rogue trading risk? Share your thoughts below or schedule a meeting to discuss your situation in confidence.

Rukshan Permal | Financial crime risk specialist
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