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The particular Barings Bank case is usually a typical instance of a failure throughout corporate governance whereby principal duties weren’t segregated and were wholly entrusted to a single person, Nick Leeson. Also, the bank did not have a system of control to monitor all
actions of its employees, and it did not have a risk management system to check the trading activities that occurred. The management of the bank was not actively involved with the day to day business, this allowed Leeson chalk up huge losses from the trading activities he undertook (Mishra, 2008). If the following governance practices were followed, the Baring Bank would not have met its demise. It is significant to note that the same governance practices apply to Societe Generale.
Segregation of duties – the many roles assigned to Leeson with no supervision allowed him to undertake unauthorized transactions and forge letters without being noticed by the management. It is crucial to ensure that measures are in place to segregate key roles and to secure against any fraudulent risks. Therefore, it is significant to ensure that there’s a balance of authority and strength and that measures are created to segregate essential duties and watch
against any fraudulence risks. The key solution is to put in place a system for checking fraud and report any fraud detected (Dhillon, 2006).
Control over data – although it is common practice that management should give all information and fairly to the Board, this hasn’t always been the truth in many cases. The board of Barings Bank was fooled by the deceptive profits and unfounded documents put together by Leeson. The code of access to data is dependent upon the honesty and openness of administration. Nevertheless, it is also important that a system is put in place, which will allow the management to have direct access to almost all information without any limitations.
Create a risk administration system – the bank entered into an area of trading that the Board, as well as the management, were not really acquainted with. The management was not sure how the derivatives that their traders were involved in worked, the expected earnings and also the risks involved in trading with such derivatives. Although this can be the case, no actions were taken to detect the precise risks concerned; there had been also simply no department as well as person responsible to oversee to trades carried out in the daily operations. The lack of your operating manual to evaluate the trade activities and an apparent trade limit, as well as margin calls, may be the fundamental purpose to describe why things went entirely out of control. Losses just weren’t cut in time but permitted to grow into huge amounts (Canac & Dykman, 2011).
The following are the technical, formal, and informal controls that Baring Bank would have developed to help create a secure business. The controls were not in place in Societe Generale (Wailgum, 2008). Set up an effective, efficient, dynamic, and highly capable risk management system; Effective management and guidance of funds activities through a robust Information System; Run parallel audit each and every day to monitor each trading position as well as its output; Observer strict adherence to various central limits with disciplinary actions for breaching the restrictions; Rotation of staff and compulsory leave for your; Carry out system audit regularly to evaluate for any kind of loopholes in the systems, strategies and techniques (Prakash, 2012).
Canac, P., & Dykman, C. (2011). The Tale of Two Banks: Societe Generale and Barings.
Journal of the International Academy for Case Studies .
Dhillon, G. (2006). Principles of Information Systems Security: Texts and Cases. In G. Dhillon, Principles of Information Systems Security: Texts and Cases (pp. 375-385). Hoboken (N.J.): Wiley.
Mishra, S. (2008). DEFINING VALUE BASED INFORMATION.
Prakash, N. (2012). Perils of Rogue Trading. 7-8.
Wailgum, T. (2008, February 26). Lessons from Societe Generale’s Financial Fiasco. Retrieved from CIO: http://www.cio.com/article/2436870/risk-management/lessons-from-societe-generale- s-financial-fiasco.html