Skip to content

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

An investment firm's internal audit finds that front-office staff routinely overrode pre-trade mandate-compliance alerts, with no second-line review of overrides. Which lesson from compliance failure cases is most relevant?

Overrides of compliance alerts need independent challenge, escalation and monitoring by the second line. Without it, mandate breaches persist and control culture erodes. Removing alerts or excusing breaches because returns were positive worsens investor protection risk.

  1. AOverride activity needs independent challenge, escalation and monitoring, because weak second-line oversight lets breaches persistCorrect
  2. BAutomated alerts should be removed to reduce noise
  3. COverrides are acceptable if the portfolio return is positive
  4. DOnly external auditors should review control exceptions

Explanation

Cases show that unchallenged overrides signal weak control culture. Independent second-line monitoring and escalation of exceptions is the remedy. Positive returns do not excuse mandate breaches.

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