Enterprise Risk Management: From Incentives to Controls, 2nd Edition

CHAPTER 20

Everlast Financial

It is the year 2020. Everlast Financial is a fictional financial services company with global investment bank, commercial banking, and insurance operations. Pamela was appointed CRO two years ago, after spending five years as a trader and three years as a market risk manager.

Pamela, the Chief Risk Officer of Everlast Financial, is enjoying breakfast at home when her cellular watch suddenly begins beeping furiously. She checks the digital display and notes the warning “Operational Risk Alert.” She thinks to herself that, despite the many advances in risk management, an operational risk debacle is still every risk officer's worst nightmare. Using her laptop, she logs on to the global risk management system to find out what is happening. Before she can so much as check the interactive risk monitoring program, Garrett, Chief of Staff, appears on the screen using the PC videoconferencing application. “We've identified a rogue trader,” Garrett says. “While we were examining the traders' records to prepare for their annual compensation review, we identified a discrepancy in Rick Gleeson's accounts. Further investigation of the transactions in question revealed that they were fake transactions designed to conceal about $200 million in trading losses in emerging markets bonds over the past nine months.”

“We need to move quickly on this to avoid additional losses and bad press,” Pamela replies, “Let's initiate a videoconference with the CEO, the heads of the ...