The Company’s Culture Contribute to the Losses (Essay Sample)
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You need to set case study in 3 hours before proceeding on body parts.
Major: Fundamentals of Risk and Risk Management
For your assignment, you should choose one of the cases listed below. You may choose any case which you find interesting.
• Describe what went wrong – what were the events which led to losses? (20%)
• Describe the consequences for the company: how was the company affected by these events? For example, the consequences might include financial losses, reputational damages, tighter supervision by the regulators, and perhaps even new regulations. Where relevant, you may also include a description of the outcomes for those employees who were primarily responsible for the losses (15%)
• Describe the weaknesses in the company’s risk management processes.
• Did the company’s culture contribute to the losses? Was risk management a high priority for the company and its Board of Directors? Did the company’s remuneration structure provide perverse incentives for employees? (10%)
• Make recommendations for improvements in risk management. How could such problems be avoided in the future? (20%)
• Presentation (10%): quality of presentation - including appropriate references. You are expected to discuss the case in your own words – so that you can demonstrate that you understand.
The University has a guide to referencing - available at https://www.student.unsw.edu.au/referencing
The recommended referencing style is the 'In-Text' or Harvard method. Other referencing styles are also accepted as long as it is applied consistently.
The Company’s Culture Contribute to the Losses
The three main events that led to losses based on the "National Australia Bank Rogue Traders in 2004" case study include people's integrity, lack of sufficient supervision of the currency options trading activity, and the risk and control framework (PWC, 2004). Based on the integrity of the people, Traders used smoothing to misreport the returns and loss of the currency options desk for years, and smoothing advanced to the concealing of considerable losses by processing fictitious transactions to hide the currency options desk's true position. They acted dishonestly, concealing losses hoping that one day they would earn sufficient return to make up for the losses they had previously hidden.
On the other hand, most major financial organizations employ an 'enterprise-wide' method to risk management and financial control, allowing for acceptable amounts of managerial decision within business divisions. This usually entails a matrix of accountability amongst business divisions, management of risks, procedures, and finance, every reporting to the CEO independently (PWC, 2004). The distribution of duties amongst and within various business divisions is influenced by a variety of factors, including the business model chosen by the company and practical issues like organizational structure, operating settings, and business development architecture. Additionally, there is no single best practice approach for risk management and financial control. However, many agencies have published several standards and benchmarks for governing and general advice. In short, the national’s risk managing strategy is to delegate the main obligation and responsibility for risk management and financial control to business divisions (PWC, 2004). This is reinforced at multiple levels through Group Risk and Group Finance's analysis, monitoring, and reporting methods. This is similar to the approach followed by several major financial organizations. Nevertheless, based on the National Australia Bank Rogue Traders in 2004" case study, the bank did not properly supervise the currency options trading activities, management of risk failed, controls toward financials were lacking, and back-office measures were severely lacking.
Additionally, The CIB aimed to increase the percentage of customer-centered returns while reducing proprietary trading on the balance sheet. This method was to be used on the currency options desk as well. Nevertheless, transaction histories and other evidence show that Mr. Dillon and Mr. Erdos, who were the general manager representing markets department, did not implement that plan in the currency options business. In reality, the Traders appear to have upturned the strategy by concentrating on proprietary trading and huge, multifaceted position-taking (PWC, 2004). The exchange options desk's supervision was confined to reviewing headline return and loss reports and did not include acquiring a thorough grasp of the dealings and risks involved. There is no evidence in the case study that senior and managerial management, apart from those in Group Risk Management, had a sufficient understanding of the risks associated with exchanging currencies.
Mr. Dillon's contribution and management of the traders on daily basis was negligible. There appeared to have been no oversight by any other managing bodies in the market’s department except for a review of testified earnings. The fact that profits were comparatively consistent was regarded by CIB management as a sign that the plan was being implemented well. However, there is substantial evidence that this was not the case (PWC, 2004). Consider the following scenarios; numerous limit infringements were regularly signed off without a serious examination or deeds to minimize positions, exchanges were occasionally finalized already when Product Usage Authorities (PUAs) 13 had been completely signed off, cautionary signs obtained from the market were neglected or not adequately and self-sufficiently examined. Despite negative comments about excessive risk-taking in the Traders' staff appraisals, the NAB did not take effective steps to constrain Traders.
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