As Baring Securities trader Nick Leeson proved last year, in today's highly leveraged financial markets one man's rash bets can bring down a bank.
Accounting firm Coopers & Lybrand yesterday published an 89-step guide to best practice in risk management, designed to nip embryonic Nick Leesons in the bud.
Laying the responsibility for a company's risk management squarely at the door of the directors, Coopers partner Roderick Chalmers said: 'Risk management needs to be driven from the top down, by the people charged with overall responsibility for running the business.' He said 'business strategy must not be developed without assessment of risk', arguing that a company's risk management techniques 'should be ahead of product development, not behind it'.
Known as GARP (Generally Accepted Risk Principles), the guide is designed for banks, securities houses and insurance companies, which increasingly are dealing in complex financial products, such as derivatives.
It draws on the lessons of recent horror stories.
German metal trader Metallgesellschaft racked up such huge losses dealing petroleum futures in Texas that it almost went bankrupt.
Orange County in the United States blew billions of dollars punting on interest rate derivatives, totally wrecking the state budget and causing the closure of hospitals and schools.