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

After a rogue trader case, a bank's review finds that the trader never took consecutive leave longer than two days in five years, and that queries from the middle office about unusually large cash movements were answered by the trader himself. Which remediation is most directly targeted at these two findings?

Mandatory block leave with system access suspended, combined with independent escalation of control queries outside the front office, directly addresses these findings. Leave forces someone else to handle positions, exposing concealment, while independent escalation stops the trader from answering his own control questions.

  1. AMandatory block leave with access suspended, plus independent escalation of middle-office queries to someone outside the front officeCorrect
  2. BRaising the trader's bonus deferral period to five years
  3. CIncreasing the desk's VaR limit to reduce the need for hedging
  4. DReplacing daily P&L reporting with monthly reporting

Explanation

Mandatory block leave exposes ongoing concealment because someone else must run the positions. Routing queries to independent parties removes the trader's ability to answer his own control questions. Deferred bonuses address incentives only, higher limits worsen exposure, and less frequent reporting weakens detection.

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