FRM Part II · FRM Exam Part II · Introduction to Operational Risk and Resilience
A bank pays a regulatory fine and compensates retail customers after its advisers sold complex structured notes to clients whose risk profiles made them unsuitable. Which Basel event type best describes this loss?
The loss belongs in clients, products and business practices. Selling unsuitable products to clients is a suitability or fiduciary failure, which Basel places in this category. It is not internal fraud, since no intentional scheme against the bank is described.
- AEmployment practices and workplace safety
- BClients, products and business practicesCorrect
- CInternal fraud
- DDamage to physical assets
Explanation
Unsuitable sales, breaches of fiduciary duty and improper product or market practices fall under clients, products and business practices. There is no indication of intent to defraud the bank, so internal fraud is wrong. Employment practices concerns HR matters, not customer suitability.
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