FRM Part II · FRM Exam Part II · Case Study: Financial Crime and Fraud
A bank's treasury dealer books fictitious offsetting trades to conceal losses on a proprietary position, and the trades are never confirmed with counterparties. Which classification best describes this activity?
This is internal fraud, specifically unauthorized trading combined with falsified records. An employee booked fictitious offsetting trades to hide losses, which is misconduct by an insider. It is not external fraud, layering of illicit proceeds, or vendor failure.
- AInternal fraud involving unauthorized trading and falsified recordsCorrect
- BExternal fraud through identity theft
- CMoney laundering through layering
- DThird-party vendor failure
Explanation
The perpetrator is an employee who exceeds authority and falsifies records to hide losses, which is internal fraud (unauthorized activity). Layering concerns disguising criminal proceeds, and no external party or vendor is involved.
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