Operational Risk Modeling in Financial Services

CHAPTER 15A Scenario in Internal Fraud

15.1 INTRODUCTION

As the simple example in Chapter 14 illustrates, the exposure measurement for internal fraud is generally the number of employees. Employees having access to specific functions could potentially perpetrate a fraud in their domain.

• Accountants with appropriate credentials could find a way to create fake suppliers in the accounting system and initiate payments.
• Employees having access to large volumes of unencrypted card data could compromise these data and sell them to criminal networks.
• Traders can take unauthorized positions to cover past losses, or even create fictitious positions to accumulate profit. This is the example we will now study in detail.

15.2 XOI MODELLING

15.2.1 Analysis

We will now analyse in more detail the “Rogue Trading” scenario.

The history of Rogue Trading cases goes back to the nineties with the Baring's case, and significant cases are publicly disclosed on a regular basis. Table 15.1 lists the most significant cases from 1995.

TABLE 15.1 Rogue Trading Cases

Year	Institution	Product	Amount ($ billion)
1995	Barings Bank	Nikkei Futures	1.3
1995	Resona	1.1
1996	Sumimoto	Copper	2.6
2002	Allied Irish Bank	FX Options	0.69
2004	National Australia Bank	FX Options	0.19
2005	China Aviation Oil	Jet Fuel Futures	0.55
2007	Goldman Sachs	0.12
2008	Société Générale	Stock Index futures	6.9
2011	UBS	Stock Index futures	2.3

The fact that rogue trading activities can also lead ...