Explanation:
The category of 'execution, delivery, and process management' under the BCBS's operational risk framework encompasses issues related to the failure to execute transactions and manage processes correctly. This includes data entry errors and unfinished legal documents. These issues can lead to operational losses and are therefore considered as operational risks. The BCBS's framework is designed to help financial institutions identify, assess, monitor, and mitigate these risks. By categorizing these risks, institutions can develop targeted strategies to manage them and reduce potential losses.
Choice A is incorrect. Internal fraud and external fraud are not under the same event risk category. Internal fraud falls under the 'Internal Fraud' category, which includes acts of a type intended to defraud, inappropriate property or circumvent regulations, the law or company policy, excluding diversity & discrimination events, involving at least one internal party. On the other hand, external fraud falls under 'External Fraud' category which includes acts of a type intended to defraud, inappropriate property or circumvent the law by a third party.
Choice B is incorrect. Acts that go against laws put in place to safeguard health and safety do not fall under clients, products and business practices but rather they fall under 'Employment Practices and Workplace Safety'. This category includes acts inconsistent with employment, health or safety laws or agreements from payment of personal injury claims or diversity & discrimination events.
Choice D is incorrect. Losses due to theft and hacking do not fall under damage to physical assets but rather they are categorized as 'External Fraud'. The damage to physical assets refers more towards natural disaster-induced losses such as those from earthquakes or floods.
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Q.5048 BCBS categorizes operational risk into seven broad categories, commonly known as "Basel types level 1." These types are further divided into regulatory types (level 2) and examples (level 3). An FRM Part II candidate highlights several points regarding the Basel event risk type categories. Which of the following statements is correct?
A
Internal fraud and external fraud are under the same event risk category
B
Acts that go against laws put in place to safeguard the health, safety, and general well-being of employees and customers fall under clients, products, and business practices
C
Issues such as data entry errors and unfinished legal documents fall under execution, delivery, and process management
D
Losses due to theft and hacking are examples of event risks under the damage to physical assets category