BARINGS BANK
Events:
Massive Losses incurred by Nick Leeson, the General Manager and Head Trader of Barings
Financial Services (BFS) by reason of unauthorised and concealed trading activities within BFS.
The true position was not noticed earlier by reason of a serious failure of controls and managerial
confusion within Barings.
The external auditors, supervisors or regulators of Barings had not detected the true position
prior to the collapse.
Risks Incurred
Operational Risk – A lack of segregation between front and back office. Leeson was permitted
throughout to
remain in charge of both front office and back office at BFS.
Operational Risk – The lack of understanding of BFS’s trading activities, the lack of
reconciliation to client records of the funding provided by Barings in London to BFS and the
lack of verification of the (false) information provided by BFS, the deficiencies and inaccuracies
in large exposure reporting to the Bank of England.
Operational Risk – The system of checks and balances necessary for the proper management and
control of a financial institution failed in the case of Barings with regard to BFS in a most serious
way, at a number of levels and in more than one location.
Potential Mitigation
Management teams have a duty to understand fully the businesses they manage.
Responsibility for each business activity has to be clearly established and communicated.
Clear segregation of duties is fundamental to any effective control system.
Relevant internal controls, including independent risk management, have to be established for all
business activities.
Top management and the Audit Committee have to ensure that significant weaknesses, identified
to them by internal audit or otherwise, are resolved quickly.
Reference: Barings bank - Case study and video - Finance train. (2016, July 18). Finance Train.
https://financetrain.com/barings-bank-case-study-and-video/