Was it really that easy to lose £1.3 billion?

I tell you what. I don’t really have insurance against anything going wrong but if I put a tick in this box and pretend that I do nobody will notice and it will be ok. Won’t it?

Mr Kweku Adoboli, a 31 year old banker with UBS in London, was working in his office in the early hours of Thursday when he was arrested on suspicion of fraud and false accounting.

In simple terms he is alleged to be a “Rogue Trader“ who undertook illegal transactions which cost the bank a serious amount of money.

£1,300,000,000 to be precise.

That’s a fairly significant figure and would represent the largest single fraud that has ever taken place in the City of London.

Not whilst there is the principle of “innocent until proven guilty” and Mr Adoboli hasn’t yet had an opportunity to defend himself, it’s not currently looking too good for him.

There are striking similarities to the case 3 years ago where trader Jerome Kerviel lost Societe Generale nearly €5bn through Rogue Trading activities.

A detailed investigation has just begun but the early reports indicate that the fraud involved setting up fictitious hedging transactions to trick the bank’s risk management systems into thinking that a trade or position had been hedged against to minimise risk and limit exposure.

A hedge is in effect a form of insurance to insure that if a particular trade goes wrong there is some offset present to mitigate the loss.

If setting up false hedging entries into the bank’s “computer risk system” turns out to be true then there will be some nervous (and possibly soon to be unemployed) people at the bank who were responsible for the risk management system.

Many thought that the days of individuals being able to lose significant amounts of money for banks through unauthorised transactions were a thing of the past. After all, banks have spent a considerable amount of time and money over recent years in ensuring their risk management systems were good enough.

Unfortunately for UBS though it looks suspiciously like their systems weren’t up to the job.

The ExP Group