find the latest legal job
Senior Associate - Litigation & Dispute Resolution
Category: Litigation and Dispute Resolution | Location: Melbourne CBD & Inner Suburbs Melbourne VIC
· Come work for a firm ranked in Lawyers Weekly Top 25 Attraction Firms
View details
Associate - Workplace Relations & Safety
Category: Industrial Relations and Employment Law | Location: Brisbane CBD & Inner Suburbs Brisbane QLD
· Employer of choice · Strong team culture
View details
Freelance Lawyers
Category: Banking and Finance Law | Location: All Perth WA
· Freelance opportunities through Vario from Pinsent Masons
View details
Freelance Lawyers
Category: Other | Location: All Adelaide SA
· • Qualified lawyer with a strong academic background
View details
Freelance Lawyers
Category: Other | Location: All Melbourne VIC
· • Qualified lawyer with a strong academic background
View details
Inside NAB’s nightmare

Inside NAB’s nightmare

THE DEPTH of the cultural breakdown at National Australia Bank during last year’s rogue currency trading scandal was revealed last month by the man who led the investigation into the…

THE DEPTH of the cultural breakdown at National Australia Bank during last year’s rogue currency trading scandal was revealed last month by the man who led the investigation into the affair.

David Lewis, who headed the Australian Prudential Regulation Authority’s (APRA’s) probe, said that as the investigation unfolded, it became clear that the problems were not confined to the trading desk. “During our investigation, we interviewed a lot of people involved — including the four traders,” he said. “The traders were young, highly motivated, and very gung ho — as traders tend to be. One thing became clear immediately: they didn’t think that they had done anything wrong.

“They didn’t think that they were stealing anything; they thought it was their job to make money for the bank and — in their minds — this is what they were doing. Yes, they knew that they were breaking the bank’s rules. But, to them, these were just bureaucracy that got in the way of what the bank really expected them to do.”

Lewis added that the investigation revealed widespread issues within NAB, despite a sophisticated controls system, and most were connected with cultural and human elements, as opposed to system breakdowns. Despite several probes, NAB’s internal audit department was ‘warned off’ when it queried what was happening on the FX options desk. Internal auditors were told the traders were ‘untouchable’.

Meanwhile, risk managers failed to properly challenge the traders and the executive risk committees managed to miss the early warning signs of the coming scandal, despite regular breaches of daily excess limits being reported.

Most seriously, Lewis said, the organisational culture at the bank was a far cry from its state policy and procedure.

Indeed, sources close to the bank said that the FX options saga unfolded despite the fact that key executives and board members has studied the so-called Ludwig report into massive rogue trading losses at Allfirst — a subsidiary of Allied Irish Banks — in 2002. There, FX trader John Rusnak managed to lose around $1.5 billion over the course of five years through manipulating the bank’s trading systems and bullying back office staff.

Far from risk management being taken seriously at NAB, it was hampered by a culture in which “risk management controls were seen as tripwires to be negotiated rather than presenting any genuine constraint on risk taking behaviour,” said Lewis.

He added APRA was alarmed at the reaction of other CEOs to the NAB affair. “Since APRA’s report into the NAB FX losses became public, I have heard many chief executives assert: ‘Of course, we’re different. That could never happen to us’,” Lewis said.

“I admire their confidence. But frankly, as a regulator, I would have been more comforted if they had been a little more pessimistic. Somehow — ‘There, but for the grace of God, go I’ — sounds more reassuring. Complacency is the number one enemy to good corporate governance.”

However, despite the huge cultural breakdown at NAB, Lewis said, the bank’s response was impressive. “Within NAB, the whole affair has been enormously cathartic; the bank has set about a program of corporate renewal that is unprecedented in Australian financial institutions,” he said. “And, what’s more, the widespread publicity given to APRA’s report has had the effect of raising standards of risk management and corporate governance across the finance sector.”

Stuart Fagg is the Editor of Risk Management magazine, Lawyers Weeklys sister publication

Countdown to chaos: how they did it

Over a four year period traders had:

Entered genuine spot deals with false rates - known as profit smoothing

Entered bogus spot deals

Entered bogus FX options deals

Like this story? Read more:

QLS condemns actions of disgraced lawyer as ‘stain on the profession’

NSW proposes big justice reforms to target risk of reoffending

The legal budget breakdown 2017

Inside NAB’s nightmare
lawyersweekly logo
Promoted content
Recommended by Spike Native Network
more from lawyers weekly
Oct 20 2017
Podcast: One of law’s most infamous alumni – in conversation with Julian Morrow
In this episode of The Lawyers Weekly Show, Melissa Coade is joined by The Chaser’s Julian Morrow....
Oct 20 2017
High Court overturns ‘excessive’ anti-protest legislation
Bob Brown’s recent victory in the High Court over the Tasmanian government was a win for fundament...
Oct 20 2017
Changes to Australian citizenship laws blocked
Attempts to beef up the requirements to obtain Australian citizenship were thwarted this week, after...
Allens managing partner Richard Spurio, image courtesy Allens' website
Jun 21 2017
Promo season at Allens
A group of lawyers at Allens have received promotions across its PNG and Australian offices. ...
May 11 2017
Partner exits for in-house role
A Victorian lawyer has left the partnership of a national firm to start a new gig with state governm...
Esteban Gomez
May 11 2017
National firm recruits ‘major asset’
A national law firm has announced it has appointed a new corporate partner who brings over 15 years'...
Nicole Rich
May 16 2017
Access to justice for young transgender Australians
Reform is looming for the process that young transgender Australians and their families must current...
Geoff Roberson
May 11 2017
The lighter side of the law: when law and comedy collide
On the face of it, there doesn’t seem to be much that is amusing about the law, writes Geoff Rober...
May 10 2017
Advocate’s immunity – without fear or without favour but not both
On 29 March 2017, the High Court handed down its decision in David Kendirjian v Eugene Lepore & ...