FRM Part II · FRM Exam Part II · Risk Measurement and Assessment
A trader enters unauthorised positions beyond his limits and hides the losses by falsifying booking records. Under the Basel event type taxonomy, how should this loss event be classified?
The event is Internal Fraud. The Basel taxonomy places intentional acts by an employee, including unauthorised trading and concealment through falsified records, in this category. Execution, Delivery and Process Management covers unintentional processing errors, so it is wrong when deliberate misconduct is involved.
- AExecution, Delivery and Process Management
- BClients, Products and Business Practices
- CInternal FraudCorrect
- DBusiness Disruption and System Failures
Explanation
Intentional unauthorised activity and falsification involving an employee is Internal Fraud (which includes unauthorised activity). Execution, Delivery and Process Management covers unintentional processing errors, which is the key distractor, since no intent is present there.
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