Enlarge imageLONDON (Reuters) - The Financial Services Authority has told banks to tighten their controls and corporate culture to avoid a repeat of the rogue trading scandal at France’s Societe Generale, warning that volatile markets heighten risks.
The FSA, in its first newsletter to firms on the subject since Societe Generale announced 4.9 billion euros (3.7 billion pounds) of losses in January, said on Tuesday its supervisors held discussions with 40 to 50 of London’s largest trading banks in recent weeks.
It said many banks were already reviewing and fixing internal gaps but the watchdog called for more checks, ranging from holidays for traders -- when colleagues take over marking or valuing a desk’s books -- to trading limits.
"The current volatile market circumstances significantly heighten
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the chances that inappropriate practices could quickly lead to record losses, so early discovery and remedial action are even more important than in ’normal’ times," the FSA said.In its newsletter, the FSA said institutions should lay out clear responsibilities and reporting lines for their front offices and ensure control and oversight is rewarded -- for example, bringing to light a high number of cancelled or amended trades in a period.
They should also encourage or require traders to take at least two weeks of consecutive holidays, or consider "desk holidays", when a colleague would takes over their books.
It also said traders should have clear and detailed mandates and warned firms on the risks of lax IT security.
"We are encouraged that many firms in London with significant trading activities are working to satisfy themselves that their basic controls and governance surrounding trading, risk management and settlement are effective," Sally Dewar, FSA managing director of Wholesale and Institutional Markets, said.
"But the risks remain, and we would urge firms to remain vigilant on unauthorised trading, especially in current market conditions."
The FSA said in January that the rogue trader scandal at Societe Generale was a "wake-up call" for banks.
(Reporting by Clara Ferreira-Marques; Editing by David Cowell)
