Actuaries warn of ‘London whale’ loss repeat

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FINANCIAL institutions risk repeating the multi-billion pound losses linked to a former trader known as the “London whale” due to human errors with figures, according to a survey by trade magazine Actuarial Post.

Nine out of ten of the 100 ­actuaries who responded to the study said they manually entered figures in spreadsheets, with half saying they were vulnerable to human error.

Daniel de Bruin, managing partner at Edinburgh-based software consultancy Modelling Design Partners (MDP), which compiled the survey, said: “Spreadsheets are notoriously difficult to audit and control. Frequent manual manipulation of data and equations leaves spreadsheets vulnerable to human error.

“The insurance industry uses the same investment instruments as investment banks. Undetected errors in these spreadsheets may lead to insurance executives not correctly estimating the risks within their portfolios.”

MDP argued that automated software could take data ­directly from customers’ ­accounts, removing the need for figures to be copied and pasted from spreadsheets.

The “London whale” cost US investment bank JP Morgan $6.2 billion (£4bn) due to a simple miscalculation, when a spreadsheet divided a set of figures by their sum instead of their average, MDP said. Jane Curtis, past president of the Institute & Faculty of Actuaries trade body, highlighted the need for accurate data in the first place. “Members undertake a broad range of roles, many requiring complex calculations,” she said. “These calculations will require the use of spreadsheets as well as off-the-shelf software products.

“In all cases, the accuracy of the calculations depends on good data, sound internal processes and a clear understanding of what the calculations provide.”