Will SocGen’s rogue trader with ‘deep knowledge’ of its risk control procedures make it harder for middle-office staff to move to the front?
The Financial Times reports that the rogue individual, who made losses of €7bn on European stock futures and mortgage write-downs, was able to get away with it thanks to an awareness of risk control gained from his time in the middle office.
Nic Leeson was similarly endowed with middle-office expertise. And SocGen’s nemesis, Jérôme Kerviel, is unlikely to be alone in knowing how to fiddle the system: risk recruiters say transitioning from risk to trading isn’t uncommon.
“It’s usually the best risk guys who do it,” says one recruiter specialising in risk, “those with a strong educational background, strong product knowledge, and good relationships with the traders.”
Will SocGen’s tribulations make banks more wary of promoting middle-office staff into trading roles in future?
Maybe not. “It’s just a question of having the right controls in place,” says an MD at a leading European investment bank. “SocGen appear to be saying that this guy knew their weaknesses – the point is that there shouldn’t have been any weaknesses.”
Banks may, however, be encouraged to revisit operational risk procedures in an attempt to prevent this kind of thing happening in future.
Paula Maiden, director of financial services recruitment at Robert Walters, says operational risk hiring is already buoyant thanks to regulations like Basel II.
However, operational risk professionals remain the poor relations: “Base salaries are 10-20% less than in market risk, and bonuses are typically 0-50% instead of 50-100%,” says Maiden.