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FRM Part II · FRM Exam Part II · Risk Identification

A bank maps its customer onboarding process and finds 12 steps. Five are manual, and three of those manual steps rely on a single employee with no backup. A new regulation will add a sanctions check step in six months. The risk manager must prioritise identification work. Which response is MOST consistent with sound practice?

The manager should update the end-to-end process map to include the new sanctions step, prioritise the three key-person dependencies, and assess how the new check interacts with existing manual steps. Key-person risk is an operational risk, and neither ignoring current steps nor automating without assessment is sound.

  1. AFocus only on the new regulatory step since the existing steps are already in operation
  2. BAutomate all manual steps immediately without assessing their risk, since manual means high risk
  3. CReassess the end-to-end map including the new step, flag the three key-person dependencies as priority risks, and evaluate interactions between the new check and existing manual stepsCorrect
  4. DRecord the key-person dependencies as human resources issues outside operational risk scope

Explanation

Sound practice integrates the regulatory change into the end-to-end map and evaluates its interactions. Key-person dependencies with no backup are an operational risk (people and process), so they should be prioritised. Ignoring existing steps, automating blindly, or excluding people risk are all deficient.

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