Risk management is neither the cause nor the solution to UBS’s problems

A headline today on CBC.ca reads “UBS case latest failure of risk management”.

I think I will spend the rest of the day being offended by the CBC. (All will be forgiven if Amanda Lang appears on the National tonight.)

Despite all the systems, oversight, controls, compliance, supervision and some other sixth thing, you can’t stop the rogue trader. Adoboli is to blame. His boss is to blame. Maybe culture or performance objectives are to blame. But risk management is not.

Saying Risk Management is to blame is like saying the police department should be blamed for a teen committing a murder: the police do their best to increase patrols in high crime neighborhoods, to take weapons off the streets, to educate teens; but police cannot stop stupid people from doing dangerous things once in while. Point the fingers at parents before the police.

Risk management is neither the cause nor the solution to a bank’s problems.

UPDATE: This post was written before it was revealed Mr Adoboli was alleged to have “accrued the record loss by carrying out a large number of transactions over the course of the three-year period, rather than through a single deal that went wrong. ” It was assumed at the time I wrote this post that the crime took place over the last few days/weeks.

 

2 thoughts on “Risk management is neither the cause nor the solution to UBS’s problems

  1. Sorry, I totally disagree. UBS is currently alleging that Kweku Abodoli has engaged in fraud from as early as 2008. While you can’t stop a crook from breaking into a home (or a bank’s vault), you should have noticed by 3 years time without a confession from the trader. UBS has suffered multiple embarrassing failures in their risk management here, and doing the job properly would have easily avoided this.

  2. Ben, I agree. The post was written before it was revealed this was a 3 year old fraud. I was assuming it was a ‘new’ fraud.

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