FRM Part II · FRM Exam Part II · Risk Governance
A bank is launching a new digital payments product. Under the Basel principles for sound operational risk management, which approach is most consistent with the requirement on change management?
The bank should assess inherent risks and controls before launch, with the risk function involved in approval, and then review as the product matures. Waiting for loss data or relying on vendor assurance is reactive and leaves the bank accountable for unmanaged risk.
- AConduct the operational risk assessment after launch, once actual loss data has accumulated
- BAssess the inherent risks and the control environment of the new product before launch, with approval processes that involve the risk function, and review them as the product maturesCorrect
- CRely on the vendor's assurance that the product is secure and skip internal assessment
- DAssess only the financial risks, since operational risks cannot be estimated for new products
Explanation
The principles require a thorough assessment of operational risk inherent in new products, activities, processes and systems before they are introduced, with risk function involvement in approval. Post-launch assessment is reactive. Vendor assurance does not replace internal responsibility, and operational risk can be assessed qualitatively and by scenarios.
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