Lessons still not learnt, warns Nick Leeson
In every industry, the vast majority of frauds are committed by the defrauded company’s own staff. But nearly 10 years after the collapse of Baring Brothers, banks have been slow to understand how to manage employee risk.
That was the message from the world’s best-known rogue trader, Nick Leeson, at a seminar organized by advisers Square Mile Compliance and Risk Audit in London last month. Leeson compared his own story with more recent scandals such as those of Allied Irish Bank’s rogue trader John Rusnak, or the four currency traders suspended by National Australia Bank earlier this year.
Has big business put checks in place to catch rogue employees before they do significant damage? Leeson suggests not.
“The similarities between Barings, AIB, and NAB are quite frightening,” said Leeson. “The only difference is that these banks had sufficient capital to withstand losses.” Rusnak, as Leeson did, was selling deep in-the-money options to hide losses. NAB’s rogue traders were simply inputting fictional prices.
“This is not rocket science,” said Leeson. “The instruments might be complex. The frauds are anything but.”
Still, it’s good to know that the authorities are taking employee risk seriously. Leeson’s audience included eight members of the Metropolitan Police as well as representatives from the Bank of England and UK regulator the Financial Services Authority.