Which significant factor has been linked to major loss events in the financial industry?

Inadequate segregation of duties is a critical factor linked to major loss events in the financial industry because it can create opportunities for fraud, errors, and mismanagement. When responsibilities are not appropriately divided among individuals, it allows a single individual to control multiple aspects of a financial transaction or process. This lack of checks and balances can result in undetected fraudulent activities or mistakes that go uncorrected, leading to significant financial losses.

Segregation of duties is a fundamental principle of internal controls, designed to minimize the risk of error or inappropriate actions. By ensuring that no one person has complete control over any financial process—such as initiating, approving, and reviewing transactions—organizations can better safeguard their assets and maintain transparency and accountability.

In the financial industry, where large sums of money are handled and regulatory compliance is critical, failing to implement effective segregation of duties can expose firms to substantial risks, including reputational damage, legal penalties, and severe financial repercussions. Therefore, this principle plays a vital role in maintaining the integrity and stability of financial institutions.