Wall Street & Technology: Blog: Soc Gen: Bank's Controls Didn't Work, says report

Soc Gen: Bank's Controls Didn't Work, says report

Christine Lagarde, France's economy minister, said some of Societe Generale's internal controls failed to work, leading to the scandal of the junior trader who "lost" $7 billion.

"Very clearly, certain mechanisms of internal controls of Societe Generale did not function, and those that functioned were not always followed by appropriate modifications," Lagarde said,
as she delivered a report on the bank's trading losses to the French government.

Lagarde also pointed out that inspections by the Bank of France's banking commission had previously found weaknesses in Societe Generale's control system.

"Inspections by the banking commission carried out in 2006-7 had led to recommendations seeking to strengthen the security of operations," a summary of the report said.

Further, Lagarde suggested banks' management should be fully implicated in risk control, notably by creating committees within governance structures dedicated to risk supervision and internal controls.

Meanwhile, industry experts point out that in the U.S. too, a broad number of banks do not have sufficient controls either.

Harjinder Sidhu, managing director of New York-based ALaS Consulting, suggests that many banks are "disjointed in their control structure."

"A lot of money is spent on developing good systems. But not a lot of work is done in bringing them together," Sidhu says. "There should be an enterprise wide control infrastructure. I need to know that all the different trade systems and reporting are all saying the same thing and are consistent."

Posted by Melanie Rodier at 02:43 PM

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