Rogue Implications

Once again the vulnerability of global financial institutions is illuminated by the operations of a single individual. Today's announcement of EUR5 billion in losses at SocGen adds to an ever-expanding list of Nick-Leeson style trading debacles - Chinese metals trader, Liu Qibing's copper loss of $100 million, a Mizuho broker's sale of 610,000 shares of J-Com for 1 yen, Allfirst currency trader John Rusnak's $691 million loss.

Whenever these events occur it conjures up an even greater anxiety - sabotage. We see the damage caused by simple incompetence and mismanagement. International financial markets are more vulnerable than ever to the influence of a single actor or group of actors acting within the financial establishment to bring down a particular institution or destabilize global markets. While no evidence exists that this has ever occurred, that high-profile financial debacles occur with alarming regularity certainly raises the question of whether it could.

In August, 2004, the U.S. Secret Service published "Illicit Cyber Activity in the Banking and Finance Sector," a report detailing the threat posed by the so-called "rogue insider" to financial institutions and, by extension, the financial system generally. The Secret Service concluded that the threat posed by rogue insiders is even greater than previously thought based on the fact that, historically, insider attacks have come from a broad spectrum of individuals with relatively modest access and technological skills. Most startling perhaps of all the report's conclusions is that the success of insider operations depended not so much on technological skills, but on skillful exploitation of existing or in some cases nonexistent supervisory procedures.