Learning outcomes: Describe challenges which can arise through the use of external data. Describe the Société Générale operational loss event, explain the lessons learned from the event and summarize how this event was classified by external data vendors.
Questions:
503.1. Which best categorizes the 2008 Société Générale operational loss event with respect to both event type and business line?
a. Internal Fraud > Unauthorized Activity (Event Types I & II); and Trading and Sales > Proprietary Positions (Business Lines I & II)
b. External Fraud > Systems Security (Event Types I & II); and Corporate Finance > Corporate Finance Municipal (Business Lines I & II)
c. Employment Practices and Workplace Safety (Event Types I & II); and Retail Banking > Private Banking (Business Lines I & II)
d. Clients, Products, and Business Practices; and Suitability, Disclosure, and Fiduciary (Event Types I & II); and Agency Services > Custody (Business Lines I & II)
503.2. The Société Générale operational loss event is an extreme example of how an operational risk event can be exacerbated by a market risk event. Consider the following facts about the loss event "that shook the operational risk world:"
I. He (Jerome Kerviel) was insufficiently supervised and at times had no supervisor at all
II. He gained password access to back office systems that allowed him to manipulate data and approve his own trades
III. He frequently breached limits, and despite being reprimanded for this in the past, was able to continue to do so
IV. At least 75 compliance alerts were raised, but were dismissed when Mr. Kerviel supplied minimal, and sometimes forged, documentation to explain his unusual activity
V. He never took his vacation time, allowing him to be on site to continue to maintain and conceal his unauthorized activities
According to Girling, which of the above are true about Société Générale?
a. None are true
b. I. and III. only
c. II. and IV. only
d. All are true
503.3. According to Girling, there are at least three challenges that arise through the use of external data. These challenges include each of the following EXCEPT which is not accurate?
a. External data is subject to bias in reporting, including a tendency to bias in favor of illegal and dramatic events over errors
b. External loss data provides no insight prior to an event occurring and therefore cannot effectively inform key risk indicators (KRIs)
c. The use of benchmarked data relies on the quality of the underlying data, and there may be a chance that the comparisons made are not accurate due to a different interpretation of the underlying definitions
d. It can be difficult to determine whether an event is relevant; the fact that a firm has the same business line does not mean it could have the same event occur, as it may have a different product or a stronger (or weaker) control environment
Answers here:
Questions:
503.1. Which best categorizes the 2008 Société Générale operational loss event with respect to both event type and business line?
a. Internal Fraud > Unauthorized Activity (Event Types I & II); and Trading and Sales > Proprietary Positions (Business Lines I & II)
b. External Fraud > Systems Security (Event Types I & II); and Corporate Finance > Corporate Finance Municipal (Business Lines I & II)
c. Employment Practices and Workplace Safety (Event Types I & II); and Retail Banking > Private Banking (Business Lines I & II)
d. Clients, Products, and Business Practices; and Suitability, Disclosure, and Fiduciary (Event Types I & II); and Agency Services > Custody (Business Lines I & II)
503.2. The Société Générale operational loss event is an extreme example of how an operational risk event can be exacerbated by a market risk event. Consider the following facts about the loss event "that shook the operational risk world:"
I. He (Jerome Kerviel) was insufficiently supervised and at times had no supervisor at all
II. He gained password access to back office systems that allowed him to manipulate data and approve his own trades
III. He frequently breached limits, and despite being reprimanded for this in the past, was able to continue to do so
IV. At least 75 compliance alerts were raised, but were dismissed when Mr. Kerviel supplied minimal, and sometimes forged, documentation to explain his unusual activity
V. He never took his vacation time, allowing him to be on site to continue to maintain and conceal his unauthorized activities
According to Girling, which of the above are true about Société Générale?
a. None are true
b. I. and III. only
c. II. and IV. only
d. All are true
503.3. According to Girling, there are at least three challenges that arise through the use of external data. These challenges include each of the following EXCEPT which is not accurate?
a. External data is subject to bias in reporting, including a tendency to bias in favor of illegal and dramatic events over errors
b. External loss data provides no insight prior to an event occurring and therefore cannot effectively inform key risk indicators (KRIs)
c. The use of benchmarked data relies on the quality of the underlying data, and there may be a chance that the comparisons made are not accurate due to a different interpretation of the underlying definitions
d. It can be difficult to determine whether an event is relevant; the fact that a firm has the same business line does not mean it could have the same event occur, as it may have a different product or a stronger (or weaker) control environment
Answers here:
