Confirmations in the spotlight

The EUR4.9 billion loss at Société Générale has highlighted the risks posed by backlogs in equity derivatives confirmations. How serious is the problem and what are banks doing to further reduce outstanding confirmations? Ryan Davidson reports

As auditors, prosecutors and regulators continue to pick through the pieces of the EUR4.9 billion loss at Société Générale (SG), risk managers at rival firms are trying to make sense of how a trader could seemingly hide huge directional exposures on European equity indexes by entering fictitious trades into the bank's systems. Details released by SG suggest a massive breakdown in risk controls and processes - among them, a failure by the back office to confirm fictitious over-the-counter