The importance of curiosity and courage

21 Jul 2015 10:17 | Anonymous member (Administrator)

One of our latest events was hosted by KPMG and focussed on Rogue Traders. The packed room were treated to some fantastic presentations from James Maycock and Marcus Kinlay, who are Directors at KPMG and Carroll Barry-Walsh who is the Head of the Regulatory Investigations Group for EMEA at UBS.

James kicked off the presentations by describing the life of a Rogue Trader as a very stressful existence. They have a daily battle of hiding risks and daily profits and loss and have ongoing funding issues as they need to make margin calls. They also have to manage all the different systems from Risk to Treasury and the fact that they are all being reconciled together. This points to the fact that most Rogue Traders have worked in the back office previously so they have an idea of the cracks in internal controls that only the traders and not the managers know about.

On a macro level these cracks could include a lack of challenge or management information not being acted upon. On a micro level this may be the use of an internal counterparty for a trade as they may not require confirmation of a trade.

Behavioural traits of a rogue trader tend towards an individual who thrives on stress, have big personal account positions, may be in debt, seen as stars in the organisation and don’t take much holiday.

In Marcus’ presentation he called for institutions to be more proactive. Marcus states that most systems are quite fragmented and there is a strong case for automation so the huge amounts of information can be digested easily.  He stated that the key needs for surveillance of traders are:

  • 1.       Focused – Which traders you need to keep a close eye on
  • 2.       Holistic – Understand the aspects of the individual
  • 3.       Prioritised – See the unusual behaviours
  • 4.       Effective – Understanding the information to determine if it really is a rogue trader or market abuse

By looking at all factors such as communications (which can be very blatant) and staff performance you can look at their normal levels of activity and highlight when their performance rises or falls above that level.

Carroll wrapped up the evening with a very entertaining presentation on her experiences working in this field. She stated that the biggest risk in the industry is who you hire. The quality of the people you have working for you is critical and you want someone you can trust who will do the right thing even when no-one else is looking.

Carroll mentioned that it was vital that the person being hired was fully checked out to ensure that their story holds up. After this management shouldn’t just rely on pretty spreadsheets to spot rogue traders, but actually walk around and manage their staff directly.

Money can make people behave very irrationally and you should never overestimate greed or underestimate stupidity.  Look at those traders who have never made a loss as the best people are those who are learning from their mistakes. I think the best take away point from Carroll’s presentation is that you need curiosity and courage in an organisation to stop rogue trading.

All in all, another fantastic evening event from the Fraud Women’s Network!


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