CORES Loss Data Collection & Analysis 3

Question 1

Which Basel II event-type category captures losses from unauthorized trading by an employee acting within the scope of their employment?

Accepted Answer

Internal Fraud

Answer

Unauthorized trading by an employee is classified under Internal Fraud (ET1), specifically the sub-category of unauthorized activity.

Question 2

What is the primary purpose of maintaining a 'boundary event' taxonomy in a loss database?

Accepted Answer

To distinguish operational losses that also have credit or market risk components

Answer

Boundary event taxonomy ensures proper classification when a loss spans multiple risk types, preventing double-counting in capital calculations.

Question 3

Which quality control mechanism is BEST suited to detect systematic underreporting of small operational losses by front-office business lines?

Accepted Answer

Automated reconciliation of GL entries to loss events

Answer

Reconciling general ledger expense entries against recorded loss events is the most direct control to identify losses booked to P&L but not captured in the risk database.

Question 4

In operational risk modeling, what is the primary limitation of relying solely on internal loss data for estimating tail risk at the 99.9th percentile?

Accepted Answer

Internal loss histories are typically too short to capture rare high-severity events

Answer

Most banks have only 5-10 years of internal loss history, which is insufficient to credibly estimate extremely rare catastrophic events.

Question 5

A loss event begins in Year 1 but legal proceedings extend recovery efforts into Year 4. According to BCBS loss data principles, when should the event date be recorded?

Accepted Answer

Year 1, when the triggering event occurred

Answer

The event date should reflect when the original triggering incident occurred, not when the loss is recognized or resolved, to preserve accurate risk trending.

(CORES) Certified Operational Risk Executive Specialist Practice Test

(CORES) Certified Operational Risk Executive Specialist Practice Test

CORES Loss Data Collection & Analysis 3