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

A bank relies on a single cloud provider for its core trading and risk systems. A regulator asks the bank to address concentration in its technology outsourcing. Which action best addresses this specific risk?

Developing exit strategies and tested fallback or multi-provider arrangements best addresses cloud concentration. The risk is operational dependence on one third party, so resilience planning is needed. Market risk capital, funding maturity and credit limits target different risk types.

  1. AIncrease the bank's capital buffer for market risk
  2. BDevelop exit strategies and a tested multi-provider or fallback arrangement for critical servicesCorrect
  3. CShorten the maturity of the bank's funding
  4. DRaise the limit on credit exposure to technology firms

Explanation

Third-party concentration risk is mitigated by resilience measures such as exit plans, diversification of providers and tested fallback arrangements. Market risk capital, funding maturity and credit limits do not address dependence on a single service provider.

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