The financial turmoil of the past year has focused the attention of the derivatives markets on counterparty risk, and there have been concrete steps to reduce it. But what about the risk of fraud? Many cases have been uncovered over the past year. Siân Williams asks whether the downturn has led to a financial crime wave, and whether investors believe the risk has worsened.
In the financial markets, recessions have a way of bringing out the worst in people. Or perhaps uncovering the bad that was already there.
Several cases of fraud involving derivatives – Bernard Madoff’s Ponzi scheme being by far the grandest – have come to light since the collapse of Lehman Brothers in September 2008.
It is very hard to quantify this while investigations are still continuing. It is harder still to tell whether frauds have been caused by the stressful market conditions...