FRM Part II · FRM Exam Part II · Case Study: Investor Protection and Compliance Risks in Investment Activities
A wealth management firm's compliance review finds that relationship managers sold a complex structured note to retail clients whose stated objectives were capital preservation. Which failure does this finding most directly illustrate?
The finding illustrates a product suitability breach. Complex, risky notes were sold to clients wanting capital preservation, so the product's risk was not matched to client objectives. This is a conduct and investor protection failure rather than a market, settlement or model risk issue.
- AProduct suitability breach arising from inadequate matching of product risk to client profileCorrect
- BMarket risk limit breach in the trading book
- CSettlement failure caused by custodian error
- DModel risk from an incorrectly calibrated pricing model
Explanation
Selling a high-risk product to clients seeking capital preservation is a suitability failure, a core investor protection and conduct risk. The other options describe different risk types not indicated by the facts.
Did you get it right without looking?
One question tells you little. A timed set on Case Study: Investor Protection and Compliance Risks in Investment Activities shows your real accuracy, how long you take and where you lose marks.
More Case Study: Investor Protection and Compliance Risks in Investment Activities questions
- A firm's three lines of defense model is being reviewed after a mis-selling event in its wealth unit. Which arrangement is most consistent w…
- A wealth manager recommends a complex structured note to a retired client whose documented profile shows low risk tolerance and a need for c…
- An investment firm reclassifies a client from retail to professional status to widen the range of complex products it can offer. The client …
- A wealth manager recommends a complex structured note to a retired client whose stated objective is capital preservation and who has little …
- A wealth manager's relationship team recommends a leveraged structured note to a retired client whose stated objective is capital preservati…
- An investment firm reclassifies a retail client as a professional client at the client's own request, after the client states they trade fre…