Ripped From the Headlines: Citi’s Six-Eyes Mistake

Ripped From the Headlines: Citi’s Six-Eyes Mistake

How much can you lose by ticking the wrong box? In a classic “teachable moment” case, Citi has just set the bar at US$ 500 million.

Citi was intending to wire a small interest payment but instead mistakenly wired the entire loan amount of $900 million. Although $400 million has been recovered and the whole remaining amount will probably not be a permanent total loss, the incident exposed an error in the bank’s controls – their “six eyes” control, which required three people to approve this kind of transaction, failed when the “maker” checked the wrong box and neither of the “checkers” understood that this was an error. Interestingly, although the error was an incorrect input, the root cause appears to be insufficient training.

You can read the story here and find a detailed anaysis in the court case here.

US$ 900 million is a lot of money, but it won’t put Citi out of business. But in a smaller company, how much can you afford to lose? How should you make sure that you have the right set of controls in place? And how do you know if they are working?

If you work in bank, prime broker, fund administrator or hedge fund, learning about Operational Risk and Operational Risk Management is crucial – and yet it is surprisingly not well communicated in real life. Often, members of the “front office” are not even aware that they run operational risks – they think those are strictly for “operations” people. And yet a fat finger trade is an easy way to lost money, and falling victim to a phishing scam is not reserved solely for support staff. Risks occur throughout the processes and infrastructure of any company.

Any professional financial services or hedge funds training program should introduce the concepts and importance of risks and controls, across the spectrum from front office to back office and also with external service providers.

Our hedge fund professional certification course features a module on Operational Risk Management which not only covers basic controls but also a risk management framework to ensure that they are overseen correctly. This is the only hedge fund certification to specialize in the management of a fund, and covers many aspects of running a financial company that are not found in other courses.