The Billion Dollar Cost of Human Error
Murphy’s law states that anything that can go wrong WILL GO WRONG. We’ve all heard the horror stories of fat finger errors and the graveyard of corporate losses they leave behind.
In 2015, a senior employee at Deutsche Bank went on vacation. Days later, a junior foreign exchange trader incorrectly processed a gross figure instead of a net value resulting in a $6 billion over-payment to a hedge fund client. While the error was later corrected, the bank continued to struggle to improve their technology systems within the quickly evolving market.[1] Consequently, in 2018 the bank incorrectly sent 26 billion euros ($35 billion) to an account when they accidentally input euros instead of yen for collateral on an OTC derivatives trade.[2]
In August 2020, Citigroup subcontractors performed a wire transfer on Flexcube and missed checking an extra two boxes to process a loan payment resulting in a transfer of the whole loan amount instead of just the $7.8 million interest payment. This mistake managed to slip through a “6 eyes” review process resulting in a $500 million loss.[3] The lesson here: compliance confirmation bias exists. A difference in perspective is necessary to catch errors. If 10 people on your team have reviewed a given task your confidence in its accuracy increases; thus, you are less likely to suspect something out of place.
But how can you protect yourself against something that is impossible to predict?
It’s easier than you think because the largest problems can arise from the smallest mishaps. Simple typos, forgotten emails, buried investment guideline amendments, and even vacation days have led to errors costing hundreds of millions. Here’s how to put out the fire before it even starts.
Communication and well-maintained documentation are key: If someone is out, the next person up should be able to step in and perform the task or pick up where they left off.
Automation is your friend: Up-to-date compliance software integrated with AI can minimize the impact of human error and lower the risk of error in the first place.
By not embracing these steps, you risk allowing a snowflake-sized error to turn into an avalanche of problems. AI can provide a unique set of eyes outside of the human assembly line of review. With up-to-date artificial intelligence programs that do not tire, the magnitude of a fat finger error can at least be contained. But where is the evidence of AI’s value add?
IMP’s own CLEAR ComplianceTM Solution is the proof. With fast-paced reliability, important regulatory procedures are identified, tracked, audited, and enforced. Utilizing AI and a seamless interface, compliance officers can extract dozens of requirements from hundreds of pages of documentation with ease, keep track of investment guideline amendments, analyze/compare rule coding, and more efficiently organize their project management process. Thanks to CLEAR ComplianceTM, IMP has been able to effectively identify gaps and redundancies in clients’ rule libraries that will help reduce trading errors.
Automated compliance systems such as CLEAR ComplianceTM that utilize AI and machine learning streamline the investment oversight process to keep investors and clients safe.
[1] Strasburg, Jenny, and Chiara Albanese. “Deutsche Bank Mistakenly Transfers $6 Billion to Client's Account.” The Wall Street Journal, Dow Jones & Company, 19 Oct. 2015, https://www.wsj.com/articles/deutsche-bank-mistakenly-transfers-6-billion-to-clients-account-1445283517.
[2] Bloomberg. “A $35 Billion Blunder! Deutsche Bank's 2nd Gaffe in Four Years.” The Financial Express, 25 May 2018, https://www.financialexpress.com/industry/banking-finance/a-35-billion-blunder-deutsche-banks-2nd-gaffe-in-four-years/1180706/.
[3]Forrester. “Why Citi's $500m Mistake Is Really a Design Debt Interest Payment.” Forbes, Forbes Magazine, 23 Feb. 2021, https://www.forbes.com/sites/forrester/2021/02/24/why-citis-500m-mistake-is-really-a-design-debt-interest-payment/?sh=28def9705900.