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

Following a large internal fraud, a bank's board wants to reduce the chance that employees' concerns about suspicious activity are suppressed by line managers. Which measure best addresses this?

The best measure is a confidential whistleblowing channel reporting to the audit committee with protection against retaliation. It lets employees escalate concerns independently of line managers who may have conflicts or incentives to suppress them, strengthening fraud detection and culture.

  1. AEstablish a confidential whistleblowing channel reporting to the audit committee, with protection from retaliationCorrect
  2. BRequire all concerns to be raised only with the employee's direct manager
  3. CLink managers' bonuses solely to short-term profit
  4. DLimit internal audit access to trading records

Explanation

A confidential channel independent of line management, with anti-retaliation protection, lets staff escalate concerns that managers might suppress. Routing through direct managers or rewarding only short-term profit reinforces the problem, and restricting internal audit access weakens detection.

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