Peter Norris, Nick Leeson's boss when the rogue trader brought down Barings, has called for industry-wide reform of risk systems in the wake of the UBS trading scandal.
Kweko Adeboli, a 31-year-old London-based banker, allegedly ran up losses of £1.3bn after making huge numbers of ill-judged, unauthorised trades. On Friday, Mr Adeboli appeared in court to be charged with fraud and false accounting, which carries a maximum 10-year sentence.
The extraordinary cover-up is all too familiar to Mr Norris, head of Barings' investment division in 1995, when Mr Leeson's derivatives trading resulted in £827m of losses and killed the bank. Mr Norris has since re-established himself as chairman of Richard Branson's Virgin empire.
Mr Norris told The Independent on Sunday that value-at-risk systems, a widely used measure of the risk of loss, were fundamentally flawed as they allowed rogue traders to act undetected. He said: "There should be a long, hard rethink of these value-at-risk systems across all the banks."
While he conceded that UBS is big enough to withstand the losses, he said Mr Adeboli should still be condemned for his actions if proved guilty. On a radio programme last month, Mr Norris told Leeson that he had "wanted to punch [his] lights out" when his losses were discovered.
"They [the bank and his colleagues] should have a visceral reaction against him," said Mr Norris. "The fallout within the organisation will be huge."
The Swiss press has already reported job cuts in the investment banking unit that suffered the loss, while "massive" savings are expected to be announced by chief executive Oswald Grübel. On Friday evening, the Financial Services Authority and the Swiss Financial Market Supervisory Authority launched an investigation into the trading losses.
Mr Adeboli is said to have informed UBS of the losses on Wednesday and was arrested at 3.30am on Thursday morning. He is being represented by Kingsley Napley, the same law firm who acted for Leeson in the wake of the Barings scandal. It is thought that the investigation, and the police, will check if others were aware of Mr Adeboli's alleged actions, which could see some of the world's biggest banks drawn into the scandal.
Ron Geffner, a former Securities and Exchange Commission attorney and a partner at the New York law firm Sadis & Goldberg, said: "Counterparties to the trades will be investigated. It is likely to mean traders at other banks will also be questioned.
"Regulators and investigators follow the money trail. Every outflow and inflow will be reviewed, going back years."
Brad Simon, a founder of the US criminal defence practice Simon & Partners, added: "It is impossible for one person to carry out a scheme like this on their own. There have to be others."
Mr Adeboli traded in exchange traded funds, an oft-criticised financial instrument that holds a variety of assets including commodities and bonds. They can be hugely speculative and have been accused of being too-lightly regulated.
Many City-watchers were amazed that such rogue trading was still possible in the wake of the Société Générale rogue trader scandal three years ago. Jérome Kerviel accumulated £7bn of losses, which led to the FSA producing guidelines to prevent such an event reoccurring.Reuse content