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FRM Part II · FRM Exam Part II · Risk Measurement and Assessment

A bank wants its RCSA to be forward-looking rather than a point-in-time snapshot. Which design feature best supports this objective?

Linking RCSA ratings to key risk indicators and triggering reassessment on events such as new products or KRI breaches makes the process forward-looking. It keeps ratings current and captures emerging risks, unlike infrequent cycles or approaches based only on past losses.

  1. ALinking RCSA ratings to key risk indicators and refreshing assessments when triggers such as new products or KRI breaches occurCorrect
  2. BPerforming the RCSA once every five years with a larger workshop
  3. CBasing all ratings solely on the prior three years of internal losses
  4. DLimiting the RCSA to risks that have already caused a loss

Explanation

Tying RCSA to KRIs and event triggers keeps ratings current and captures emerging risks. A very infrequent cycle goes stale. Relying only on past losses or only on risks that have already crystallized is backward-looking and misses new exposures.

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