FRM Part II · FRM Exam Part II · Risk Identification
A bank's loss data shows a large loss when a rogue employee in a business unit made unauthorized trades and falsified records. Under a Basel-style event-type taxonomy, which level 1 category is the best fit?
Internal fraud is the best fit. The loss arose from intentional misconduct, unauthorized trading and falsified records, by an employee. External fraud requires a third-party perpetrator, while execution and process failures and system failures describe unintentional errors or outages, not deliberate internal wrongdoing.
- AInternal fraudCorrect
- BExternal fraud
- CExecution, delivery and process management
- DBusiness disruption and system failures
Explanation
Unauthorized activity and intentional falsification by an employee is internal fraud under the Basel event-type categories. External fraud involves third parties. Execution errors are unintentional process failures, and system failures involve technology outages.
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