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Answer: The data capture system of Bank JKY fails to capture correct market prices, causing OTC derivative trades to occur at incorrect prices and resulting in significant losses.
## Explanation According to the Basel Committee's operational risk event categories, **Execution, Delivery, and Process Management** includes losses from: - Failed transaction processing or process management - Relations with trade counterparties and vendors - Data entry, maintenance, or loading error - Accounting error/entity attribution error - Delivery failure - Collateral management failure - Reference data maintenance **Option B** describes a data capture system failure that causes trades to occur at incorrect prices - this falls under **Execution, Delivery, and Process Management** as it involves process failures and data management errors. **Option A** would be classified under **Clients, Products & Business Practices** as it involves fiduciary breaches and improper business practices. **Option C** would be classified under **Internal Fraud** as it involves unauthorized trading by an employee. Therefore, the correct answer is **B** as it represents a process management failure in the data capture system.
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A senior risk consultant is discussing different types of operational risk with a group of managers at Bank JKY. During the discussion, the consultant describes the seven Basel event categories for the classification of operational losses and provides examples of losses in each of the categories. Which of the following describes an operational loss that Bank JKY should classify in the Execution, Delivery, and Process Management loss category?
A
A client files a lawsuit against Bank JKY for a breach of fiduciary responsibility in the client's investment account, and Bank JKY pays a monetary settlement to the client.
B
The data capture system of Bank JKY fails to capture correct market prices, causing OTC derivative trades to occur at incorrect prices and resulting in significant losses.
C
A rogue trader makes a series of unauthorized derivative trades, which are liquidated by Bank JKY for a sizable loss after discovered.
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