Fresh approach to controls needed

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LONDON – Following the significant fine imposed on Credit Suisse for controls failures and given the tougher stance the UK Financial Services Authority (FSA) is taking, specialist business and technology consultancy Detica has reiterated its call for the industry to refresh its approach to managing risk and controls.

Tony Clark, director of Detica’s investment banking unit, has stressed banks need to smarten up their act. “Any bank tempted to view penalties for regulatory malpractice as if they were parking tickets needs to think again,” he says. “The current regime at the FSA is clearly determined to crack down on irregular behaviour and, from now on, those found to be in breach of the rules might well start seeing themselves clamped or even towed away”.

According to Clark, investigations of recent instances of market abuse have highlighted the inadequacy of silo-based controls, which are further weakened by matrix reporting lines and a culture of deference towards the front office. Firms need to take a more holistic view of risk management to tackle this and other weaknesses in the traditional control model.

The challenge for banks is to supervise their multi-faceted operational environments effectively without over-burdening their operations with additional cost and complexity. Understanding the increasingly sophisticated nature of the instruments being traded is one element. This in turn is compounded by organisation structures characterised by matrix reporting lines that straddle product, functional and geographical silos.

”We are seeing increasing interest from the banking community in a framework that offers a resilient cross-silo approach to operational risk management,” says Clark.

Detica is testing its hypothesis at a major bank, where it is creating a holistic view of trader risk across the functional silos. “The challenge now is sourcing the data,” says Clark. “Data experts have long acknowledged the need to maintain more complete and accurate sources across organisations but their protestations often fall on deaf ears. We are now starting to see data quality rise to the top of the business agenda as management accepts that it is critical to building secure and resilient control environments.”