Magazine article American Banker

N.Y. Regulator: Daiwa Scandal Unlikely to Spawn New Rules

Magazine article American Banker

N.Y. Regulator: Daiwa Scandal Unlikely to Spawn New Rules

Article excerpt

One of the country's top banking regulators warned that banks will have to step up their internal controls in the wake of the Daiwa scandal.

But Robert McCormick, the deputy superintendent in charge of supervising foreign banks for the New York State Banking Department, added that it is unlikely new state or federal regulations will be put into effect to curb the activities of rogue traders.

"We prefer to take a more balanced approach," Mr. McCormick said. "We'll all be better off without having laws that go into effect and can't be changed."

Addressing auditing staff members from foreign banks at a meeting of the Association of International Bank Auditors last week, Mr. McCormick emphasized that foreign banks will have to do better at complying with existing laws in order to avoid frauds like the one that cost Daiwa Bank $1.1 billion.

"Internal auditors must be able to function as an early warning system for management," said Hal Labrett, chairman of the bank auditors association.

Mr. McCormick noted that many banks have been lax in enforcing a federal rule that requires all bank employees to take two weeks of vacation annually. Had that regulation been enforced at Daiwa, he said, the bank would have had a chance to detect a senior trader's fraud because another employee filling in for him might have discovered his falsified entries.

"Some Asian banks seem to think that going on vacation means coming into work without a necktie," Mr. McCormick said.

He added that vacation meant "not only off-premises but off-line as well, and that means no trading from home. …

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