The whole episode has brought risk management into glaring perspective and has exposed the underlying weaknesses in banks internal control systems, despite advances made since the downturn.
They are still largely powerless to prevent a determined fraudster getting round all their systems.
The UBS debacle is an indictment on banks anti-fraud provisions.
It is symptomatic not just of investment banking, but of the problem fraud causes the whole financial services industry.
Preventing fraud is vital not just because it protects balance sheets. It also protects a company’s reputation.
The FSA said recently that mortgage fraud is a concept only understood by those who work in fraud prevention, so is often disregarded by senior management – a view that appears prophetic in the aftermath of the UBS episode.
An embodiment of that attitude was a trader who quipped in the Telegraph “fraud is fraud” and intimated that it is something the industry will always have to live with so shouldn’t be dwelt upon.
UBS meekly defended itself by saying the episode was impossible to prevent, arguing risk on that level would always escape detection.
That sort of explanation is unlikely to wash with the board and shareholders after UBS’ shares nosedived 15%, or with its peers at other banks that have come under renewed pressure to manage their risk better following the episode.
If lenders want to get serious about preventing fraud and managing risk more effectively, this is the sort of attitude they need to eradicate from their modus operandi.
Fraud reflects badly on the state of a bank’s control infrastructure.
The FSA, in its June thematic review, warned lenders internal systems remain weak.
They are not getting information returned to them in a consistent format or in enough quality or quantity to be able to detect fraudulent trends.
The FSA says the different elements of lenders’ anti-fraud provisions need to be better coordinated.
Too many lenders are going out on a limb and developing ad hoc solutions of their own.
Lenders are using outdated control systems and often have to pull together a variety of competing systems across their different brands.
They should be using flexible web-based technology to help standardise their management of risk by pulling data together in a single, consistent source.
Mark Blackwell is managing director of xit2
