23 October 2017
Gary Wright

Gary Wright

Gary Wright - BISS Research

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SocGen what has changed since Leeson?

01 February 2008  |  2976 views  |  0

In 2005 I attended an event where Nick Leeson provided an honest and forthright presentation of how he managed to create the dealing positions that eventually brought down Barings Bank. He consistently maintained that he could not have carried through his actions, which caused the loss, without the senior management's lackadaisical attitude or even worse, lack of knowledge; this being one of the main points during his presentation and one now repeated by the latest in line, Jerome Kervial of SocGen.

It's frightening that the excuses from SocGen about the ability of a middle office clerk raised through the ranks, into a responsible dealing position, mirrors that of Nick Leeson and the pronouncements of Barings at the time. I must assume from both announcements, that criminals only have the capability to carry out their activities, if they have been grounded in the middle and back offices! We can also assume by these amazing declarations by SocGen and Barings that the front office people do not enough knowledge or experience to fulfil criminal intent!

Over thirteen years has passed between the two incidents, yet both Leeson and Kervial make almost identical statements. With so much attention focussed on Barings and the universal cleansing undertaken by financial services firms that followed, with new rules and the regulators, supposedly now examining systems processes and procedures, to prevent reoccurrence, we now find it's all been a waste of time! There has been an incalculable amount of money spent by the industry as a whole, in producing an operational and business environment where these things should not happen. Today we have SocGen with a considerably greater loss than Barings, despite the efforts of the industry to plug gaps and ensure the security of the bank's business. Why?

Could Leeson have been right, hitting the nail on the head, when he said that it was the senior management at Barings that caused the disaster? This now looks a likely story and although Leeson was punished with Jail, the real culprits got away with it. Sure some of them lost their jobs, but how much of a punishment was that for people comfortably able to take early retirement? Did all those culpable get their just deserts? We will never know as the focus was on Leeson and he took the can and still does. Those that supply the gun and the bullets must surely have some responsibility for those that fire it!

The SocGen episode must not follow the Leeson model, which is a sure-fire way of finding scapegoats and missing those really responsible. It must start at the boardroom and go downwards. Lets not spend another fortune on a round of system upgrades, risk assessments or even conferences, as the countless spend will amount to nothing, unless we learn from Leeson and now Jerome Kervial. The responsibility starts with people and at the top. If people are not doing their jobs properly they should not be employed. If they do not understand the job, they should not be given it. If systems can be bypassed they should integrated and if reports are not made or not looked at, they should be used as evidence for the prosecution.

At the end of the event a room full of compliance directors from nearly all the leading financial firms were asked could a Barings happen again. The panel of experts joined in the unanimous verdict, that it could and will, with only the banks name left blank. We can now fill it in; Societe Generale!

TagsRisk & regulation

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job title Analyst
location London
member since 2007
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CEO of B.I.S.S. Research, founder of the BISS Independent Accreditation for all systems and services provided to financial services companies internationally. Guest Lecturer at Reading University and...

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