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FRM Part II · FRM Exam Part II · Case Study: Investor Protection and Compliance Risks in Investment Activities

A firm is fined USD 12 million for mis-selling. Direct client redress is USD 30 million, legal and remediation program costs are USD 8 million, and a revenue loss from client attrition over two years is estimated at USD 20 million. What is the total estimated cost of the event, and which category is the largest component?

Total cost is USD 70 million, the sum of the 12 million fine, 30 million redress, 8 million remediation costs and 20 million lost revenue. Client redress at 30 million is the largest component, exceeding the fine, which shows fines understate total loss.

  1. AUSD 70 million; client redressCorrect
  2. BUSD 50 million; client redress
  3. CUSD 70 million; revenue loss from attrition
  4. DUSD 62 million; client redress

Explanation

Sum: 12 + 30 + 8 + 20 = 70 million. Client redress at 30 is the largest. USD 50 million omits attrition; 62 omits remediation costs of 8 (12+30+20).

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