A probe into the EUR5bn Société Générale rogue trading scandal by the French government has revealed that the bank was warned last year that its security systems and internal controls were lacking.
French Finance Minister Christine Lagarde told reporters that SocGen failed to apply appropriate controls over Jérome Kerviel, who was allegedly able to use loopholes in controls and circumvent risk management procedures to make a series of unauthorised bets on European futures.
Kerviel's deals eventually led the bank to reporting EUR4.9 billion in losses last month. It is thought that Kerviel's trades exceeded the bank's market value.
Lagarde's report states that inspections by the banking commission carried out in 2006-7 had led to recommendations that SocGen "strengthen the security of operations".
Lagarde told reporters that SocGen missed a number of "alarms", most notably in November when derivatives exchange Eurex alerted the French bank about the positions in Kerviel's book.
Although the report backs up SocGen's version of events, Lagarde has called on banks to reinforce "Chinese Walls" between the back, middle and front office and to monitor unusual behaviour - such as when a trader does not take holidays.
Reports emerged last week that Kerviel only took four days of holiday in 2007.
In a statement SocGen claims Lagarde's report "does not call into question the systems used to manage market risk".
"Concerning the controls which were successfully circumvented by the fraud, the measures which would have enabled its detection and prevention have already been implemented or will be put into place shortly," says the bank.
French prosecutors began the process of charging Kerviel with attempted fraud last week. The 31-year old has reportedly admitted to hacking into computers and faking e-mails to hide his positions. The trader was released on police bail last week. However a hearing at which his bail will be challenged will take place on 8 February.