FRM Part II · FRM Exam Part II · Risk, Regulation and Organizational Structure
A hedge fund's COO also serves as chief compliance officer and head of operations, and also approves trades above limits. Which concern is the most direct implication of this organizational design?
The main concern is weak segregation of duties. One person runs operations, oversees compliance and approves limit exceptions, so no independent check exists on errors or misconduct. Sound design separates trading, operations, risk and compliance roles to create checks and balances.
- AWeak segregation of duties, since the same person controls execution, oversight and exception approvalCorrect
- BExcessive diversification of responsibilities improving oversight
- CBetter independence since fewer people have access to information
- DReduced operational risk because decisions are centralized
Explanation
Combining operations, compliance and limit-exception approval in one person removes checks and balances, so errors or misconduct may go undetected. Concentration of roles does not improve independence. Sound structure separates front office, operations, risk and compliance.
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