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FRM Part II · FRM Exam Part II · Risk Reporting

A bank sets a reporting escalation protocol: any single operational loss event above USD 500,000 must reach the CRO within 24 hours; the monthly report goes to the executive risk committee; the quarterly report goes to the board. In March, a USD 650,000 fraud loss is discovered on 10 March and is first mentioned in the monthly report issued 5 April. Which assessment is most accurate?

The bank is non-compliant. The USD 650,000 fraud exceeded the USD 500,000 trigger, so the CRO should have been told within 24 hours of discovery on 10 March. Escalation protocols work independently of the routine monthly and quarterly reporting cycles, so waiting until 5 April was a breach.

  1. ACompliant, because the loss was reported in the next monthly report
  2. BCompliant, because the board receives quarterly reports anyway
  3. CCompliant, because only losses above USD 1 million need escalation
  4. DNon-compliant, because the loss exceeded the threshold and should have been escalated to the CRO within 24 hours, independent of the routine reporting cycleCorrect

Explanation

Threshold-based escalation operates separately from the periodic cycle. USD 650,000 exceeds the USD 500,000 trigger, so the CRO needed to be informed within 24 hours of discovery. Waiting for the monthly report (about 26 days later) breaches the protocol; the USD 1 million figure is invented.

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