France’s banking regulator on Friday fined Societe Generale 4 million euros (US$6.3 million) over “grave deficiencies” in its internal controls that enabled a massive rogue trade scandal at the bank.
The banking commission, imposing a financial penalty at the upper end of the maximum possible 5 million euros, said it had also issued a formal warning to Societe Generale for failing to prevent the staggering losses of 4.9 billion euros, which it has blamed on 31-year-old trader Jerome Kerviel.
After interviewing representatives of the bank on June 20, the commission said it detected “grave deficiencies in the internal control system” that “made possible the development of the fraud and its serious financial consequences.”
“The weaknesses brought to light in particular the deficiencies in hierarchical controls, carried on over a long period, throughout 2007, without being detected or rectified by the internal control systems,” it said.
One of France’s big three banks, Societe Generale shocked the financial world in January by announcing the losses, incurred as it was forced to unwind more than 50 billion euros of unauthorized deals Kerviel is said to have made.
Kerviel turned himself in to police on Jan. 26, two days after the bank revealed the losses, and on Jan. 28 was charged with breach of trust, fabricating documents and illegally accessing computers.
The trader is the only person charged over the biggest rogue trade scandal in banking history, but investigators have been trying to find out if he had help inside or outside the bank.
Officials said on Thursday that French prosecutors are also seeking charges of complicity against Kerviel’s assistant, a man in his early 20s whose name has not been released.
Kerviel meanwhile has blamed his managers for not exerting proper control, saying they failed to reprimand him despite “tonnes of alerts” sent to them over his dealings.
A psychologist’s assessment of Kerviel obtained by AFP last month said his managers knew of his dealings but kept silent as long as he was making good returns.
“There were emails sent to my bosses from controllers indicating fake transactions. To my mind, the fact that no one came to talk to me about it somewhat justified my position,” he told the psychologist, referring to his dealings in early last year.
“They knew that I was trading outside the bounds ... Since it was profitable, they let it go by,” Kerviel was quoted as saying in the document.
The head of Societe Generale, who faced pressure to resign over the scandal, conceded last month that there were faults in the bank’s internal control systems.
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