Internal systems and controls that help to prevent rogue trading

Abstract

This paper addresses the issues that lead to rogue trading and how to prevent them. It provides an in-depth analysis of the most significant example of rogue trading in recent times, which resulted in the much-publicised €4.9bn loss at Société Générale in January 2008. As part of this analysis, the paper runs through the chain of events that led to the discovery of the fraud, how the rogue trader, Jerome Kerviel, was caught, what controls were missing and the lessons learned from the event. The second part of the paper discusses how organisations should go about reassessing internal systems and controls to prevent future instances of rogue trading from occurring. As part of this, a list of the typical controls that would be expected in a large trading organisation, and which would help to prevent instances of fraud and rogue trading from occurring, is presented. The paper closes with a discussion of some of the additional measures that can be put in place to minimise the chances of fraud occurring.