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FRM Part I · FRM Exam Part I · Enterprise Risk Management and Future Trends

A bank increasingly outsources critical processing to a small number of cloud providers. Which emerging risk is most directly increased by this trend?

Heavy outsourcing to a few cloud providers raises concentration and third-party risk, since a failure or cyber incident at one provider can disrupt critical functions across the bank and potentially many institutions. It does not directly change market risk, risk-weighted assets or insurance underwriting risk.

  1. AConcentration and third-party risk, because a failure at one provider could disrupt many functions or institutionsCorrect
  2. BBasel capital arbitrage risk, because cloud usage reduces risk-weighted assets
  3. CPure market risk, because cloud services change interest rate sensitivity
  4. DUnderwriting risk, because cloud usage changes insurance claim frequency

Explanation

Reliance on few providers creates concentration and third-party dependency; an outage or cyber incident at one provider can affect critical services and, system-wide, many firms. The other options relate to unrelated risk categories and are not direct consequences of outsourcing.

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