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ACCA Strategic Professional · Strategic Business Leader · Identification, assessment and measurement of risk

Ormond Bank's board is classifying risks. An employee uses a stolen customer database to open fraudulent accounts. Another risk is that a regulator withdraws the bank's licence after repeated reporting breaches. Which classification of these two risks is most appropriate?

Employee fraud using stolen data is operational risk, arising from failures in people, processes or systems. Licence withdrawal following reporting breaches is compliance or regulatory risk. They are not strategic, market or liquidity risks, since neither concerns market choice, price movements or funding.

  1. AThe first is an operational risk (internal fraud) and the second is a compliance or regulatory riskCorrect
  2. BBoth are strategic risks arising from poor choice of market
  3. CThe first is a market risk and the second is a liquidity risk
  4. DThe first is a business risk of demand falling and the second is a financial risk of gearing

Explanation

Internal fraud arises from failed people, processes or systems, so it is operational risk. Licence withdrawal from reporting breaches is a compliance or regulatory risk. Neither relates to market prices, liquidity or demand.

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