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

In several major fraud events, losses grew for years because staff raised concerns that were not acted upon. Which governance improvement most directly addresses this lesson?

An independent escalation channel with whistleblower protection and tracked follow-up addresses ignored warnings best. Major frauds persisted because concerns were dismissed or suppressed, so concerns must reach senior management or the board and be resolved with an audit trail.

  1. AIncreasing the frequency of external audit rotation only
  2. BEstablishing an independent escalation channel with protection for whistleblowers and tracked follow-up of concernsCorrect
  3. CTying all front-office bonuses to annual revenue
  4. DReplacing key risk indicators with annual self-assessments

Explanation

The lesson is that warning signs were ignored or suppressed. An independent, protected escalation channel with tracked resolution ensures concerns reach senior management or the board. Revenue-linked bonuses worsen incentives, and self-assessments are less timely than indicators.

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