The Société Générale Incident

Deja Vu

Deja vu was what I felt when I heard about the news of the Société Générale Incident. Since when the news of Barings had shocked the world and how the rest of the world was amazed at how ridiculous the controls of the financial systems were, it happened again in 2008. The awesome truth is that this is not yet the end but only the tip of the iceberg.

Many financial institutions have not yet learned from both incidents.

larger financial institutions because of more adequate capital are likely to have more fund allocation for better control procedures. This is why you see over the past decade smaller financial companies were being acquired or merged into the larger financial institutions. One of the benefits is shared resources. The merging is a good news for the financial world and the consumers but bad news for reducing the unemployment rate especially for cities or countries relying their GDP heavily to the financial sector. On the flip side, smaller companies because of their tight overheads for control, they are more likely to have poorer controls.

And it is appalling to know that there are companies due to various reasons, just turn a blind eye all the way from the management, the auditors, up to the monetary authority. They stall and finger cross hoping that nothing would happened until the day they retired. The situation gets worsen in times of high unemployment. If everyone gets lucky, it's business as usual. Otherwise it's another Barings or Société Générale incident at the newspaper front page.

The reasons behind.

1. Low Risk Awareness.

2. Profit making overrides anything else. There are businesses that competitions among rival companies are fierce. This arise to dilemma for management on which is more important. Whether is it business or control? And when overhead is a big issue, The authority within the institution skewed toward profit making.

2. Staffs are not qualified - When the economy is bad, cutting cost is the only option for the senior management. As a result experience staff were replaced with inexperience and incompetent staff. It takes sometime for these new comers to learn from their job before they realize what is the risk behind. And then there are inept staffs who are excel in politics to keep their jobs but really don't care about anything else let alone potential risk. Some products are too complicated for the average auditing or controling staff to comprehend. The controlling or auditing staff then rely entirely on other staff such as IT or frontline to behave themselves. The result is just like having no control at all.

3. Outdated or poor and inadequate control procedures.

4. Turning blind eyes attitude.