FRM Part II · FRM Exam Part II · Introduction to Operational Risk and Resilience
A bank's trading assistant, acting beyond his authority, books and conceals a series of unauthorized positions that later cause a large loss. Under the Basel operational risk event type taxonomy, how should this event be classified?
The event is internal fraud. Basel's taxonomy assigns intentional acts by an employee to circumvent policy or authority, such as concealed unauthorized trading, to this category. It involves an internal party acting deliberately, unlike process errors, which belong under execution, delivery and process management.
- AInternal fraudCorrect
- BExternal fraud
- CExecution, delivery and process management
- DBusiness disruption and system failures
Explanation
Basel defines internal fraud as losses from acts intended to defraud, misappropriate property or circumvent regulations or policy, involving at least one internal party. Unauthorized trading that is deliberately concealed fits this category. Execution, delivery and process management covers unintentional processing errors, not intentional concealment.
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