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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 misleading fee disclosures, the board commissions a remediation program. Which sequence of actions best reflects sound remediation practice?

Sound remediation starts by identifying the root cause, then quantifies which clients were harmed and compensates them, and finally repairs the controls and tests that they work. Cosmetic wording changes or replacing one executive do not address the underlying control failure.

  1. AIdentify the root cause, quantify affected clients and compensate them, then fix controls and test their effectivenessCorrect
  2. BCompensate clients first, then stop all further investigation to limit cost
  3. CRevise marketing wording only, since the fine has already been paid
  4. DReplace the compliance head and treat the matter as closed

Explanation

Effective remediation finds root cause, determines the scope of client harm, makes redress, and corrects controls with testing to prevent recurrence. Cosmetic changes or personnel moves alone leave the control weakness unaddressed.

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