FRM Part I · FRM Exam Part I · Operational Risk
After the Société Générale rogue trading case, which control improvement would most directly address the root cause of the unauthorized positions remaining undetected?
Strengthening segregation of duties with independent trade verification and mandatory leave is the best response. The rogue trading case succeeded because positions were hidden with fictitious trades and alerts were not escalated. Bonus deferral, higher capital or offshoring do not directly detect concealed unauthorized activity.
- AStrengthening segregation of duties between front office and back-office confirmation, with independent verification of trades and mandatory leave for tradersCorrect
- BIncreasing the trader's bonus deferral period only
- CRaising the bank's regulatory capital buffer for market risk
- DMoving trade booking to a lower-cost offshore location
Explanation
The case showed that a trader with back-office knowledge could create fictitious offsetting trades because controls and alerts were not acted upon. Independent confirmation, segregation of duties and mandatory leave directly target concealment. Deferral and capital do not detect hidden positions, and offshoring does not improve controls.
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