FRM Part I · FRM Exam Part I · Operational Risk
A bank's data-entry clerk mistakenly sends a payment of USD 4 million to the wrong counterparty because of a keying error. The payment is recovered only partially. Which Basel event type best describes the loss, and why?
It is execution, delivery and process management. The loss arose from an unintentional keying error in processing a transaction. Internal fraud requires intentional wrongdoing, external fraud requires a third party acting deceptively, and no system outage occurred, so the other categories do not apply.
- AExecution, delivery and process management, because it is an unintentional processing errorCorrect
- BInternal fraud, because an employee was involved
- CExternal fraud, because a counterparty received the money
- DBusiness disruption and system failures, because a payment system was used
Explanation
Involvement of an employee is not enough for internal fraud; intent is required. The keying error is an unintentional failure in transaction processing, so it falls under execution, delivery and process management. No external party acted fraudulently and no system failed.
Did you get it right without looking?
One question tells you little. A timed set on Operational Risk shows your real accuracy, how long you take and where you lose marks.
More Operational Risk questions
- Which statement best describes why extreme value theory (EVT), such as the peaks-over-threshold method with a generalized Pareto distributio…
- A bank uses the old Basel II basic indicator approach with alpha of 15%. Its annual gross income over the last three years was USD 400 milli…
- In the Loss Distribution Approach (LDA) to operational risk capital, a bank models each business line and event type cell using two separate…
- A bank's risk team reviews the Basel event-type categories to classify a loss. A trader enters unauthorized positions and hides the losses b…
- Under the Basel standardised approach for operational risk capital (the Basel III/IV framework), which two inputs are multiplied together to…
- A bank's operational risk function wants a tool that traces the stages of a payments process to find where errors, delays or control gaps co…