FRM Part II · FRM Exam Part II · Case Study: Financial Crime and Fraud
After a fraud, a bank's review finds staff believed 'management would never act against a top performer.' Which risk driver does this finding most directly indicate, and what is the best response?
The finding points to a weak tone from the top that feeds rationalization and low perceived consequences. The best response is consistent, visible enforcement of sanctions regardless of performance or seniority. Liquidity buffers, scorecard recalibration or across-the-board pay rises do not address the belief that top performers are exempt.
- AWeak tone from the top that enables rationalization; strengthen consequences and visible enforcementCorrect
- BInadequate liquidity buffers; increase high-quality liquid assets
- CModel risk in credit scoring; recalibrate the scorecards
- DPressure from low salaries; raise base pay across all staff
Explanation
A belief that top performers are exempt signals a weak culture and tone from the top, which makes it easy to justify misconduct and lowers perceived detection or punishment. The best response is consistent, visible enforcement regardless of seniority. Liquidity, scorecards and pay levels do not address the belief described.
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