National Australia Bank (NAB) is set to lose up to A$180 million ($140 million) from unauthorised foreign exchange option trades, despite efforts to improve its operational risk management in the past couple of years.NAB said today it has suspended four employees as a result of the losses. Three were based in Melbourne and one in London.
The losses resulted from trades on the Australian dollar and New Zealand dollar options markets. It wasn’t clear whether the options involved Australian dollar/New Zealand dollar cross-currency pairs or the cross-currency rates between the two currencies and other currencies.
The dealers sought to cover the initial losses with unauthorised trades on NAB’s account, said one source familiar with the NAB investigation. "It appears that there was a large number of small trades," the source said.
"NAB internal controls caught the unauthorised trading quickly but didn’t prevent it," said a Singapore-based analyst. He added that the underlying issue was related to operational risk within a large organisation that has grown rapidly through mergers and acquisitions in recent years.
Four members of the bank’s currency options trading team were involved in unauthorised options trades from October to mid-January, said NAB spokesman Robert Hadler. NAB’s board subsequently suspended the four employees and closed all outstanding trades to stop further losses.
Hadler said the next step is to complete an internal review and work with policing authorities to decide on further action.
NAB has also reviewed its risk management procedures, although no changes are planned. One on-going change that may help is NAB’s current introduction of an electronic forex options system to replace the existing manual system, Hadler said.
More on Regulation
OpRisk Asia: Revised standardised approach an improvement but no panacea
OpRisk Asia: New market structures have led to op risk primacy
Strict classification of structured products into 'complex' and 'non-complex' criticised
SA-CCR is mooted successor to 27-year-old CEM, but sensitivity may count against it
Sign up for Risk.net email alerts
Sponsored video: MarketAxess
Sponsored video: Tradeweb
Multifonds talks to Custody Risk on being nominated for the Post-Trade Technology Vendor of the Year at the Custody Risk Awards 2014
Sponsored webinar: IBM Risk Analytics
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.