Jerome Kerviel, 31, blamed for the Euro4.9 billion (HK$57.91 billion) worth of trading losses at French bank Societe Generale where he worked, faces charges of breach of trust, fabricating documents and illegally accessing computers. Fraud charges have been dropped.
We asked Neill Poole, managing director of consultancy Alvarez & Marsal Asia in Hong Kong, who has 17 years of experience in forensic accounting and investigation experience, whether this would have any lasting impact on the industry.
Do you see any long-term fallout to hit the banking sector? These things tend to have a limited lifespan, so it would not necessarily have major implications on confidence in banking systems. What we will see is that financial institutions and regulators will be looking closely at the systems and controls that they have in place, and will be learning lessons from this affair that will help them identify problems earlier if they start to happen again in the future.
Were you surprised? Although companies and financial institutions can put systems and controls in place, and improve them over time, if someone is determined to perpetrate fraud, I do not think there are many systems and controls in place that would prevent it. The question often is how long it can remain undetected. In that sense, it is not a huge surprise it happened. But the amounts involved appear surprising.
What was your first reaction when you read about the case in the paper? For losses to build up to that scale over a period of time and not be noticed by anybody usually implies some sort of control breakdown. There are various levels of controls in financial institutions, and they include IT controls, review and supervisory, segregation of duty controls, and so on. I would imagine that, although it is still being investigated, it would probably be a combination of weaknesses in two or more areas. Perhaps he had access to the IT systems when he should not have. This has certainly been suggested. It has also been suggested that it may have happened because he was able to use other people's passwords, and that he knew the systems in his pre-trading days when he was working in the back office. It may also be that, in terms of the supervisory controls, questions might have been asked and he might have been able to give answers that initially satisfied those responsible for supervising and auditing, but this should have been probed further and they should have felt that something was not quite right.
How would this affect the day-to-day life of people working in the sector? We can already see that in terms of different types of regulations that the banks and financial institutions have to comply with, including anti-money laundering, the compliance departments have grown rapidly and are still growing. I think that will be another stimulus for more emphasis on compliance teams, and it will possibly lead to more emphasis on oversight. One of the suggestions was that this case happened, or was not spotted as quickly as it otherwise could have been because various managers who were overseeing Kerviel had recently left Societe Generale. From that perspective, I would probably expect to see financial institutions increase staff in the compliance functions, and deploy other people to fill in temporary vacancies to make sure they have the proper coverage. It is likely that what the financial institutions will do is look at their existing systems and assess whether they work.