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

Following a major internal fraud, which post-incident action best supports long-term resilience and reduces regulatory risk of repeat failure?

The best action is root-cause analysis, remediation of the identified control gaps, and tracked closure with independent validation. This addresses why the fraud occurred and shows regulators that lessons were applied. Insurance alone, minimal records, or undocumented reassignments leave weaknesses unresolved and raise governance concerns.

  1. APerform root-cause analysis, remediate the control gaps found, and track closure with independent validationCorrect
  2. BReplace the incident record with a brief summary to limit discovery risk
  3. CIncrease insurance coverage and make no control changes
  4. DReassign the staff involved without documenting findings

Explanation

Regulators expect lessons learned to lead to remediation that is verified independently. Insurance transfers some loss but leaves control weaknesses, and hiding or not documenting findings undermines governance and may itself be a regulatory breach.

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