Only vigilance can stop rogue traders like Kerviel

* Kerviel guilt helps restore SocGen's credibility-lawyer

* Vigilance, whistleblowers alone can stop rogue traders

* Complex trading systems can fox compliance departments

By Kirstin Ridley and Luke Jeffs

LONDON, Oct 5 (Reuters) - Only vigilance can stop rogue traders such as Jerome Kerviel, the sharp-suited French dealer who was jailed on Tuesday and ordered to repay former employer Societe Generale (SOGN.PA) 4.9 billion euros ($6.8 billion).

Although all companies are at risk from dedicated fraudsters, lawyers said Kerviel's sentence of five years, with two suspended, for breach of trust, computer abuse and forgery helped restore credibility in investment bank SocGen. [ID:nLDE6940L9]

"It is all too easy for a fraudster to seek absolution by pointing to system weaknesses and say that it was all the fault of management," said Simon Morris, a partner of London law firm CMS Cameron McKenna.

"The only answer is eternal vigilance -- re-check the procedures, ensure the controls are working and, above all, train your staff to blow the whistle on the deal that seems implausibly good and the trade that looks improbable."

SocGen, which dismissed Kerviel's claim that his superiors sanctioned and encouraged his risky trades, was largely exonerated. It sought damages for the money it lost unwinding unauthorised trading positions worth 50 billion euros in 2008.

Kerviel, 33, stepped on a well trodden path when he took increasingly risky and large bets. One of the most notorious rogue traders was Nick Leeson, a futures trader in Singapore, whose $1.4 billion derivatives losses triggered the collapse of Britain's venerable Barings Bank in 1995.

Since the credit crisis peaked in around 2008, the financial industry has been beefing up compliance departments in an effort to rein in excessively risky practices, which have been blamed for undermining companies and economies across the globe.

However, lawyers and consultants said neither strengthened compliance departments nor jail sentences would prevent large-scale trading fraud in future.

Wolfgang Fabisch, the chief executive of German compliance consulting firm b-next, said risks were actually increasing, as bank dealing systems become increasingly complex.

"The gap between dealing and compliance is increasing and this is only being compounded by the rapid growth in algorithmic trading. There is rarely anyone in compliance who understands algo trading," Fabisch said.

Ben Kingsley, a partner at London law firm Slaughter and May, said history suggested that the traders who were liable to perpetrate this sort of crime would continue to believe they were either temporarily bending the rules or undetectable.

"Most often, as was the case with Leeson and Kerviel, the individuals concerned knew what they needed to do to disguise their improper dealings and thus circumvent compliance controls: an 'inside job' in that sense," Kingsley said.

"There will be another (trading fraud) in time, the question is only: when?" (Editing by David Cowell)

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