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The European Central Bank lacks an independent risk management authority and suffers from a disconnect between management and risk management authorities, at least as of 2010, according to an independent audit report released today. “No independent, single, body, such as a Chief Risk Officer or overall risk management committee, has been set up between the EB and the two risk function/units,” the report found.
“At the time of the audit the EB member charged with risk management also had a number of other areas of responsibility, whereas a CRO would solely concentrate on risk management.”
The finding was rejected by the ECB.
“The current organizational structure for risk management at the ECB provides for an efficient framework for the allocation of tasks under the Executive Board’s collegiate responsibility for the Bank’s overall risk management.”
But the finding is eerily parallel to the exact same conclusion stated in today’s report from MF Global’s trustee, which said MF Global’s ever-increasing trade amounts had left risk management teams in the dust.
“The Risk Department struggled to keep up with MF Global’s strategic changes,” the trustee report states. By the spring of 2010, the changes in MF Global’s business had progressed ahead of the risk policies and practices in place, and gaps became apparent and were identified to the Board.”
The FT’s Ralph Atkins found the conclusions “eye-catching” given the massive expansion of the ECB’s balance sheet.
LeFigaro’s Cyrille Lachèvre, meanwhile, raised the prospect of a Jérôme Kerviel-like rogue employee’s error going unnoticed as a result of the risk management gaps and causing a massive meltdown.
Kerviel was the Societe Generale employee who’s billion-dollar trades went unnoticed by his superiors until mammoth losses were reported.
“It’s troubling to read that ’40 per cent of ECB personnel said in 2009 that they had not received sufficient information concerning operational risk management’ ” he said.