October 07, 2011, 5:47 PM — Never let it be said there aren't enough opportunities to pump up the potential of technology and how hard people work to throw away that potential.
UBS – the British brokerage at which a rogue trader lost $2 billion on the company's derivatives desk – toke UK papers indignantly today that the IT systems it has in place to keep track of trades and warn management when someone is doing something incredibly stupid worked exactly as they were supposed to.
In a memo from interim CEO Sergio Ermotti (the last CEO quit in remorse last month) the company said an internal investigation showed internal risk and operations systems detected unauthorized or unexplained activity "but this was not sufficiently investigated nor was appropriate action taken to ensure existing controls were enforced," according to the memo, a copy of which found its way to the WSJ.
The man, Kweku Adoboli, 32, is under arrest and charged with fraud. Unlike other dramatic losses found later to be the work of overoptimistic bets on the market or high-risk trades, Adoboli is charged with falsifying documentation for exchanges that never took place and trying to stash the money away in a Swiss bank account.
This wasn't just a quick blip that anyone keeping an eye on a monitoring system could have missed if their minds drifted for a minute or they had to run to the loo. Adoboli was at this for three years.
Even in honest but really, really unsuccessful derivatives trading – in which many of the trades are automatic and based on artificial products assembled from parts of other bits of financial property and it's possible to win or lose a lot of money quickly – it takes a lot longer to lose $2 billion than a few moments of drifting attention could explain.
"Criminal law" keeps UBS from revealing too much more about the situation but "We have to be straight with ourselves. In no circumstances should something like this ever occur. The fact that it did is evidence of a failure to exercise appropriate controls," Ermotti wrote.
Even in a business in nothing exists in the real world and all the actual business of the business travels in bits and bytes representing spins of the high-finance roulette wheel, it's not enough to keep an eye on the bottleneck all the digital money has to go through and ignore either the people trading it and keep an eye yourself on the people who are supposed to be keeping an eye on the traders.