FRM Part II · FRM Exam Part II · Case Study: Financial Crime and Fraud
A bank's treasury trader books fictitious offsetting trades with an internal counterparty to hide losses on a real position, and delays confirmations so the entries are not matched. Which classification of operational risk event is most appropriate?
The event is internal fraud involving unauthorized activity and concealment. A bank employee deliberately booked fictitious trades and delayed confirmations to hide losses, which is intentional misconduct by an insider rather than an external attack, a client practice failure or a system outage.
- AExternal fraud
- BInternal fraud involving unauthorized activity and concealmentCorrect
- CClients, products and business practices failure
- DBusiness disruption and system failure
Explanation
The perpetrator is an employee who deliberately concealed losses and acted beyond authority, so it is internal fraud (unauthorized activity). External fraud requires a third party outsider. Client or system categories do not fit because no client suitability issue or outage is described.
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