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FRM Part II · FRM Exam Part II · Risk Identification

A bank discovers that a single failure at a third-party payment processor caused a system outage, delayed customer payments, and resulted in both direct reimbursement costs and lost fee revenue. The operational risk team must record this in its loss database. Which approach is most consistent with a well-designed framework?

Record one linked event with one event-type classification, count the reimbursements as the loss, and track lost revenue separately as another effect. Splitting it into several events distorts frequency, and ignoring it because a third party caused it understates the bank's exposure.

  1. ARecord only the reimbursement costs, since lost revenue is an opportunity cost never captured in operational risk
  2. BRecord one linked event with a single event-type classification, capturing reimbursements as a loss and tracking lost revenue separately as an other effectCorrect
  3. CRecord separate unrelated events for each consequence so each has its own category
  4. DExclude the event because the failure originated at a third party rather than inside the bank

Explanation

A single root event should be recorded once and linked to its effects, with a consistent classification. Lost revenue is typically tracked as a near-loss or opportunity cost outside the formal loss figure but still informs analysis. Splitting the event distorts frequency, and third-party origin does not remove the bank's exposure.

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