Every City trader should be forced to take two weeks of continuous holiday in an effort to prevent rogue traders operating within British banks, the Financial Services Authority said yesterday.

In its first newsletter since the Société Générale scandal, when the French bank lost €4.9 billion (£3.7 billion) through the actions of Jérôme Kerviel, who refused to take holiday despite being ordered to do so, the FSA said that it had met British banks to urge them to tighten up scrutiny of front-office trading staff.

The FSA said a two-week holiday would allow other colleagues to inspect traders' books and ensure they were valued correctly.

“Are traders encouraged (or required) to take two-week continuous holidays? As well as being a useful tool in catching a ‘rogue trader', this could also prove to be a preventative measure. Firms could also give consideration to ‘desk holidays' where traders take a break from marking or valuing their own books, and a colleague takes over this responsibility,” it said.

“Our supervisors have been speaking informally to 40 to 50 of the largest trading banks in the London market about how they have been applying the lessons learnt. We were pleased to hear that almost all had discussed internally the relevance of this case to their own business, and many had already put in place reviews to ensure they identify any gaps in trading controls and close them as soon as possible,” the FSA said.

The watchdog said uncertain international trading conditions meant that rogue traders had the capacity to jeopardise a bank's standing.

“The current volatile market circumstances significantly heighten the chances that inappropriate practices could quickly lead to record losses, so early discovery and remedial action are even more important than in 'normal' times.”

Companies should also tighten up computer security and ensure that back-office workers had sufficient control and oversight of trading staff, as well as introducing mechanisms by which unusually large trades were flagged to senior managers.

Banks refused to discuss their internal procedures publicly, but a number of institutions said they had compulsory two-week holidays in place for all staff, not just traders.

One investment bank said: “We're all looking at what we have in place to see if there are things that need to be tightened up. We accept we need to revisit issues like this to see if what we have in place is sufficient.”

Sally Dewar, managing director of wholesale and institutional markets at the FSA, said: “We are encouraged that many firms in London are working to satisfy themselves that their basic controls and governance surrounding trading, risk management and settlement are effective.

“But the risks remain, and we would urge firms to remain vigilant on unauthorised trading, especially in current market conditions.”

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