26 October 2011
UBS Finds Risk Management Stress Test Costly
By Mathew J. Schwartz
UBS failed to stop a single rogue trader from racking up $2 billion in losses. Yet, some experts argue that banks overall may be better than others at managing risk.
Alexei Miller of DataArt discusses the reasons for UBS’s failure to avert the scandal, and talks about risk management issues to consider beyond technology.
“..Might UBS have been slow to rein in its massively profitable investment banking group's practices, especially given the firm's history of poor risk management oversight? "This story absolutely does suggest a deeper culture challenge," says Alexei Miller, executive VP at DataArt, a custom application development shop that builds risk management systems for financial services firms.
But, he says, no system, check, or balance--including governance, risk, and compliance (GRC) controls--is 100% foolproof. "The whole incident is not, in the end, about systems or controls or risk officer's power," says Miller. "No system will ever guarantee absolute protection. It is human behavior, first and foremost. A clever and well-connected bad apple will always find a way around risk controls. How many instances of unauthorized trading will we never learn about, because they go the trader's way?"
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