Skip to content

FRM Part I · FRM Exam Part I · Learning From Financial Disasters

Following the Wells Fargo sales practices scandal, in which employees opened unauthorized accounts to meet aggressive targets, which root cause is most strongly indicated?

The main root cause was incentive and cultural: aggressive sales targets rewarded account volume rather than customer interest, and complaints were poorly escalated. This led employees to open unauthorized accounts. It was not a trading leverage, clearing margin or credit-scoring model failure.

  1. AIncentive design and sales culture that rewarded volume over customer interest, combined with weak escalation of complaintsCorrect
  2. BExcess leverage in trading book positions
  3. CFailure of a central counterparty to collect margin
  4. DA model error in credit scoring of mortgage portfolios

Explanation

Unrealistic sales quotas and pay incentives pushed staff to commit misconduct, and warnings were not effectively escalated. The other options describe market, clearing or model problems unrelated to this case.

Did you get it right without looking?

One question tells you little. A timed set on Learning From Financial Disasters shows your real accuracy, how long you take and where you lose marks.

Practise Learning From Financial DisastersFree diagnostic mock

More Learning From Financial Disasters questions