FRM Part II · FRM Exam Part II · Risk Reporting

A bank reports operational risk metrics quarterly. Over the year, reported loss amounts are stable and all KRIs are green, yet an internal audit finds that front-office staff routinely avoid logging near misses and small events because they fear performance consequences. What is the most significant implication for the risk reporting?

The reports probably understate risk because under-reporting of near misses and small events biases the data, so stable losses and green KRIs give false assurance. Management should improve reporting culture and data completeness checks rather than rely on the metrics or raise thresholds.

1. AThe reports are reliable because stable losses show effective controls
2. BThe reports likely suffer from under-reporting bias, so green indicators and stable losses may give false assurance; reporting culture and data completeness need to be addressedCorrect
3. CThe reports should simply add more KRIs of the same type
4. DThe loss threshold should be raised to reduce logging effort