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FRM Part II · FRM Exam Part II · Guidance on Managing Outsourcing Risk

A bank tracks a critical outsourced service with quarterly incident counts. Over four quarters, incidents were 4, 6, 9 and 13. The bank's risk appetite trigger for escalation to the board is either an incident count above 12 in a quarter or a quarter-on-quarter increase above 40% for two consecutive quarters. Which statement is correct?

Both triggers were breached. Quarterly growth was 50%, 50% and about 44%, all above 40% for consecutive quarters, and Q4's count of 13 exceeds the limit of 12. The matter should therefore be escalated to the board under the stated risk appetite.

  1. AOnly the count trigger was breached, in Q4
  2. BOnly the growth trigger was breached, in Q3 and Q4
  3. CBoth triggers were breachedCorrect
  4. DNeither trigger was breached

Explanation

Growth: Q2 = 6/4-1 = 50%; Q3 = 9/6-1 = 50%; Q4 = 13/9-1 = 44.4%. All exceed 40%, so the growth trigger is breached for consecutive quarters (indeed Q2-Q4). The count of 13 exceeds 12 in Q4. Hence both are breached; option 2 ignores Q2 and the count.

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