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What is amazing about Leeson’s activities is the fact that he was able to accumulate such staggering losses without the management of Baring’s noticing.
Leeson had various roles to play within BSS; he was the general manager, the head trader and the head of the back office. Usually different people perform these tasks, but Baring’s management failed to see the conflict of interests befalling one undertaking multiple roles . Leeson had control over both the trading desk and the clearing and settlement function eliminating the necessary checks and balances usually found within trading organizations, a clear violation of a fundamental principle of risk management. (Herring, 2002)
There was a lack of separation between the front and back offices due to Leeson effectively controlled both sides of the trading operation. From that position he was able to conduct unauthorized trading and subsequently manipulate the number and details of the transactions in which he had engaged, concealing them from Baring’s management. His back office functions were never effectively monitored by management staff and Thus BFS was operated almost entirely by Leeson alone.
The management of Baring’s should have not allowed a single individual to wear multiple hats or have dual control. Management should have realized that this type of arrangement would pose a risk, as a temptation for dishonest trading practices would exist since Leeson was not directly accountable to anyone. Management should therefore, as a precaution, have clearly established responsibility for each business activity and clearly segregated the duties to be performed as this is fundamental to any effective control system. Different individu ...