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

After a compliance failure, a fund manager's review finds that the policy was well written, staff were trained, and a monitoring tool existed, but alerts were routinely closed without investigation because the compliance team was understaffed and incentivized on closing speed. What is the most accurate root-cause conclusion?

The failure is one of operating effectiveness, not design: the monitoring control existed but alerts were closed without investigation because of understaffing and speed-based incentives. The root cause is a governance and culture weakness, so remediation must address resources and incentives rather than just policy or training.

1. AInherent risk was mis-rated, so no control change is required
2. BThe policy design was deficient and must be rewritten
3. CThe training was inadequate and must be repeated
4. DControl operating effectiveness failed because incentives and resourcing undermined the detective control, a governance and culture weaknessCorrect