Assurance in the News

Assurance in the News - The Catch-22 Most importantly-...

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Assurance in the News: “Goin’ Rogue”
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Rogue Trading Story FORTUNE’s September 17 article, “The catch-22 of  catching a rogue trader”. UBS  trader  Kweku Adoboli  was arrested on  September 15 and is now facing charges of fraud  and false accounting. UBS says he covered up  unauthorized trades over the past three months that  lost the company  $2.3 billion . Occurred recently after UBS enacted a huge risk  management overhaul.
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Assurance measures taken… It is suggested that periodic, thorough internal  audits should be done to see which parts of their  business may be vulnerable to unauthorized trading. Security systems to ‘flag’ suspicious trades Record conversations traders have from desk phones Managers need to review trading activity i.e. limit autonomy when dealing with huge trades.
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Unformatted text preview: The Catch-22 Most importantly- managers must create a corporate culture/environment that contravenes risky trade decisions (tone at the top). At the same token, traders are inadvertently rewarded for successful unauthorized bets. This creates a catch-22. Escalation of Commitment Bias Make irrational decisions based upon an initial rational investment/commitment. ex: bidding war This investor wanted to dig himself out a hole, that a third party observer would most certainly identify as a bad decision. Difficult to reverse this pattern of risky behavior- one of few options is corporate culture so they feel free to communicate mistakes with their managers. Any examples? Questions?...
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Assurance in the News - The Catch-22 Most importantly-...

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