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

An investment firm's order management system, which enforces client investment restrictions pre-trade, is unavailable for six hours due to a vendor outage. Management allows manual order entry to continue. From an operational resilience perspective, which action is most important?

The firm should apply compensating manual controls, such as independent restriction checks before orders are released, and review every trade executed during the outage afterward. Investor protection obligations remain with the firm even when a vendor fails, so controls must continue in some effective form.

  1. ASuspend all post-trade compliance monitoring to save resources
  2. BRely on traders' memory of restrictions, since the outage is temporary
  3. CApply compensating manual controls, such as independent restriction checks before release, and review all trades made during the outage afterwardCorrect
  4. DTreat the outage as a vendor issue with no responsibility retained by the firm

Explanation

Resilience means continuing critical services within tolerance while preserving control effectiveness. Compensating independent pre-release checks plus retrospective review maintain investor protection. The firm remains accountable for outsourced functions, and removing monitoring or relying on memory raises breach risk.

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