Skip to content

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

An investment firm tracks a key risk indicator for failed trade confirmations with thresholds: green below 2%, amber 2% to 4%, red above 4%. Over four months the rate was 1.5%, 2.5%, 3.5%, 3.9%, while the firm's escalation policy requires action only at red. Which assessment is most appropriate?

The failure rate has risen steadily from 1.5% to 3.9% and is close to the red threshold, so the firm should escalate early and investigate root causes. Waiting for red makes the escalation reactive; raising thresholds or dropping the indicator would hide a deteriorating control environment.

  1. AThe indicator is trending toward red, so the firm should escalate early and review root causes, since the escalation design is purely reactiveCorrect
  2. BNo action is needed because no month reached red
  3. CThe thresholds should be raised so the indicator stays green
  4. DThe indicator should be discontinued because it is lagging

Explanation

The rate rose from 1.5% to 3.9% in consecutive months, staying amber and approaching the 4% red limit. Effective KRIs act as early warnings, so trend-based escalation and root-cause review are warranted. Raising thresholds masks the problem and waiting for red defeats the purpose.

Did you get it right without looking?

One question tells you little. A timed set on Case Study: Investor Protection and Compliance Risks in Investment Activities shows your real accuracy, how long you take and where you lose marks.

Practise Case Study: Investor Protection and Compliance Risks in Investment ActivitiesFree diagnostic mock

More Case Study: Investor Protection and Compliance Risks in Investment Activities questions