How can investment banks control the risk of unauthorised trading? In a Newsletter published today, the Swiss Financial Market Supervisory Authority FINMA has summarised its expectations of market participants. FINMA will check selectively if and how institutions fulfil these standards.
Operational risks for banks active in trading are substantial and often relate to unauthorised trading. Such risks can rapidly result in significant losses, as recent events caused by unauthorised trading activity at UBS in London have shown.
Against this backdrop, FINMA has decided to define its expectations of all Swiss banks active in trading. The FINMA Newsletter published today sets out for supervised institutions how existing regulatory provisions on risk management are to be interpreted in this regard. The FINMA Newsletter comprises 30 specific control points which explain the following topics, among others, in detail:
Banks' senior management must determine the scope and intensity of supervision of trading departments. Banks must devote adequate attention to both measuring and controlling risks and provide relevant robust organisational framework. In addition, sufficient human and technical resources are to be deployed to control trading-related operational risks. Management must create a culture that fosters a critical attitude and a disciplined implementation of controls throughout the organisation. Moreover, the internal control system must be able to send out early warnings of material unauthorised trading risks. If daily or periodic profits or losses are particularly high, they must be fully explained.
Within the normal course of its supervisory activities, FINMA will check to what extent the most important supervised institutions fulfil these expectations.
Tobias Lux, Media Spokesperson, phone +41 (0)31 327 91 71, firstname.lastname@example.org