FRM Part II · FRM Exam Part II · Risk Mitigation
A firm classifies its controls. Which of the following is correctly identified as a detective control?
Daily reconciliation of internal positions to the custodian's records is a detective control because it finds errors after transactions occur. Dual authorization, password rules and pre-trade limit blocks are preventive, since they stop unwanted events before they happen.
- ADaily reconciliation of trading system positions to the custodian's recordsCorrect
- BDual authorization limits on wire transfers
- CPassword complexity requirements on the settlement system
- DPre-trade limit checks that block orders exceeding a threshold
Explanation
Reconciliation identifies breaks after transactions have occurred, so it is detective. Dual authorization, password rules and pre-trade blocks all act before the event to stop errors or unauthorized actions, making them preventive.
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