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FRM Part II · FRM Exam Part II · Introduction to Operational Risk and Resilience

A custodian bank's operations clerk keys the wrong settlement date on a client's securities transfer instruction. The mistake causes a failed settlement and compensation paid to the client. Which Basel event type best fits this loss?

This is execution, delivery and process management. The loss arises from an unintentional data entry error in transaction processing that led to a failed settlement. There is no deliberate fraud and no client suitability or product breach, so other categories such as internal fraud or clients, products and business practices do not apply.

  1. AClients, products and business practices
  2. BExecution, delivery and process managementCorrect
  3. CEmployment practices and workplace safety
  4. DDamage to physical assets

Explanation

Execution, delivery and process management covers failed transaction processing and process management, including data entry errors and missed deadlines. The error was unintentional, so it is not internal fraud. No client suitability or product-design breach is described, which rules out clients, products and business practices.

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