Skip to content

FRM Part II · FRM Exam Part II · Case Study: Financial Crime and Fraud

After a major fraud, a post-event review concludes that the firm's culture rewarded revenue and tolerated override of controls by senior producers. Which remedial action best addresses the root cause rather than the symptom?

Aligning compensation and promotion with risk and control outcomes, and consistently sanctioning overrides by senior staff, addresses the root cause. The problem was a revenue-first culture tolerating control breaches, and incentives and accountability change behavior where more procedures or insurance do not.

  1. AAdding more detailed procedures to the policy manual
  2. BAligning compensation and promotion with risk and control outcomes, with senior management consistently sanctioning control overridesCorrect
  3. CHiring more junior operations staff
  4. DIncreasing the insurance cover for fraud losses

Explanation

The root cause is cultural: incentives and tolerance of senior overrides. Linking pay and promotion to risk and control behavior and applying consistent sanctions changes behavior. More procedures, more junior staff, or insurance treat symptoms or transfer loss without removing the cause.

Did you get it right without looking?

One question tells you little. A timed set on Case Study: Financial Crime and Fraud shows your real accuracy, how long you take and where you lose marks.

Practise Case Study: Financial Crime and FraudFree diagnostic mock

More Case Study: Financial Crime and Fraud questions