FSA warns banks to change trading floor 'culture' after SocGen debacle

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The Independent Online

The UK financial watchdog has warned banks to tighten their controls and introduce a trading-floor culture that protects against rogue traders in the wake of the €4.9bn losses at Société Générale sparked by Jérôme Kerviel.

The Financial Services Authority, the UK markets regulator, yesterday cautioned the City to take heed of the lessons that emerging from the SocGen scandal. It said: "Firms should consider whether the front office culture is designed to prevent 'rogue trader' activities."

This included encouraging, or requiring, traders to take two week holidays. Mr Kerviel is understood not to have taken a holiday for eight months for fear of exposure.

It added that financial groups should scrutinise traders who have cancelled a high number of trades, introduce stronger supervision and consider "desk holidays" where individuals are moved from marking and valuing their own books.

The FSA published its latest Market Watch newsletter yesterday, which outlined a series of points banks should consider to protect against "rogue trader risk". The report focused on its response to the SocGen incident.

The checklist included the demand for appropriate trading mandates, stronger risk management, quality information and solid systems. The watchdog said it had conducted informal conversations with 50 of the largest trading banks in London, many of whom were reviewing their operations since SocGen announced its losses in January.

Sally Dewar, managing director of the FSA's wholesale and institutional markets, said: "We are encouraged that many firms in London with significant trading activities are working to satisfy themselves that their basic controls and governance surrounding trading, risk management and settlement are effective.

"The risks remain, and we would urge firms to remain vigilant on unauthorised trading, especially in current market conditions."

SocGen itself breathed a huge sigh of relief yesterday as it enjoyed strong demand for its €5.5bn rescue rights issue, launched to bolster its balance sheet after the trading losses.

The raising of the capital, which was underwritten by JP Morgan and Morgan Stanley, was almost twice oversubscribed after the bank introduced heavy discounts. To ensure strong demand, it offered one share for every four existing shares at €47.50, a discount of 39 per cent.

The bank believes that it will now be able to hold off potential takeover bids from some of its bigger rivals in France. It said in a statement: "The success of the operation will allow Société Générale to continue its development in business and regions with high potential."

One source close to the raising said: "SocGen's management are extremely happy with how the rights issue went."