FRM Part II · FRM Exam Part II · Risk Identification
A bank discovers that a trader deliberately concealed losses by booking fictitious trades, bypassing system controls. Under the Basel event-type taxonomy, how should this event be classified?
This is internal fraud. A bank employee deliberately booked fictitious trades to hide losses, which is intentional misreporting and unauthorized activity involving an insider. It is not an unintentional process error, not an external party's act, and not a failure related to client obligations.
- AExecution, delivery and process management
- BInternal fraudCorrect
- CExternal fraud
- DClients, products and business practices
Explanation
The event involves an employee intentionally misappropriating or misreporting, which is internal fraud (unauthorized activity, intentional misreporting). Execution/process errors are unintentional. External fraud requires a third party acting. Clients/products relates to obligations to clients.
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