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

After a regulator fines an asset manager for mis-selling, the board orders a remediation program. Which sequence best reflects sound remediation practice?

Sound remediation establishes root cause and the full scope of harmed clients, repairs the failed controls, compensates clients, and then independently tests whether the changes work over time. Paying fines, replacing individuals or collecting attestations does not show the underlying control weakness is resolved.

  1. ACompensate affected clients first, then investigate root causes only if further complaints arise
  2. BDetermine root cause and scope of affected clients, fix controls, compensate clients, and then test that the fix is effective and sustainedCorrect
  3. CReplace the sales staff involved and close the matter once the fine is paid
  4. DUpdate the policy manual and consider remediation complete when staff sign attestations

Explanation

Effective remediation identifies the root cause and full population of harmed clients, corrects the control failure, redresses clients, and then independently verifies the fix. Paying the fine or changing staff leaves the cause unaddressed, and attestations alone do not show controls work.

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