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The City watchdog is set to call for international action to force global investment banks to improve their back-office operations dramatically amid alarm at a spiralling number of failures.
The Financial Services Authority, led by Hector Sants, will make the call at an upcoming meeting with its international peers in the wake of the Société Gé*érale trading scandal.
The FSA is alarmed at a rapid increase in the number of errors discovered by investment banks when it comes to reconciling their trading positions. These "mismatches" now amount to billions of pounds and regulators blame the increasing complexity of the trades undertaken by banks, combined with a chronic under-investment in back-office technology.
A spokeswoman for the FSA said: "We have noticed a rise in the number of failures among banks and we are planning to raise the issue with the group of international regulators."
Chris Tattersall, the managing director of Smart, a back-office consulting firm, said that he regularly sees "backlogs of thousands of trades, with some of the worst cases nearly a year old".
The credit crunch was exacerbating the problem, he said. "We found the example of a trader who had to spend two days in the back office figuring out issues associated with a CDO transaction."