Module: | MODULE B: RISK MANAGEMENT
Q406: Scenario: A bank's back-office operations team accidentally enters an extra zero while processing a high-value corporate NEFT transfer, resulting in significant financial loss due to unrecoverable funds sent to the wrong counterparty. Based on Basel operational risk event type guidelines, consider the following statements:
1. This error is strictly classified as "Clients, Products, and Business Practice" because it involves a corporate client's funds and an external counterparty.
2. This accidental data entry error falls squarely under the "Execution, Delivery, and Process Management" event type.
3. This specific event type covers losses from failed transaction processing, accounting errors, and negligent loss of client assets.
Which of the statements given above is/are correct?
2. This accidental data entry error falls squarely under the "Execution, Delivery, and Process Management" event type.
3. This specific event type covers losses from failed transaction processing, accounting errors, and negligent loss of client assets.
Which of the statements given above is/are correct?
✅ Correct Answer: B
The correct answer is B. Statement 1 is incorrect: The "Clients, Products, and Business Practice" (CPBP) event type involves losses arising from an unintentional or negligent failure to meet a professional obligation to specific clients (e.g., fiduciary breaches, misuse of confidential customer info, money laundering, sale of unauthorized products). A simple back-office typing error does not fall here.
Statement 2 is correct: An accidental data entry error, such as adding an extra zero during an NEFT transfer, is a classic example of "Execution, Delivery, and Process Management" (EDPM). It represents a failure in transaction processing and process management.
Statement 3 is correct: The EDPM event type explicitly covers losses from failed transaction processing or process management, as well as relations with trade counterparties and vendors.
This includes data entry errors, accounting errors, failed mandatory reporting, and negligent loss of client assets.
Therefore:
Option A is incorrect because Statement 1 is false.
Option B is correct as both Statement 2 and 3 are true.
Option C is incorrect because Statement 1 is false.
Option D is incorrect because Statement 1 is false.
Statement 2 is correct: An accidental data entry error, such as adding an extra zero during an NEFT transfer, is a classic example of "Execution, Delivery, and Process Management" (EDPM). It represents a failure in transaction processing and process management.
Statement 3 is correct: The EDPM event type explicitly covers losses from failed transaction processing or process management, as well as relations with trade counterparties and vendors.
This includes data entry errors, accounting errors, failed mandatory reporting, and negligent loss of client assets.
Therefore:
Option A is incorrect because Statement 1 is false.
Option B is correct as both Statement 2 and 3 are true.
Option C is incorrect because Statement 1 is false.
Option D is incorrect because Statement 1 is false.