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FRM Part II · FRM Exam Part II · Risk Identification

A bank wants to run RCSAs that give consistent, comparable results across business units. Which design feature most directly supports comparability of results?

A common risk taxonomy with standardized rating scales and clear criteria for likelihood, impact and control effectiveness best supports comparability. It ensures a given rating means the same across units so results can be aggregated. Unit-specific scales or limiting scope to past losses weakens consistency and forward-looking value.

  1. AA common risk taxonomy with standardized rating scales and defined criteria for likelihood, impact and control effectivenessCorrect
  2. BAllowing each unit to define its own rating scales to fit local processes
  3. CLimiting the assessment to risks that have already produced losses
  4. DHaving each unit choose the frequency of its own assessments without a bank-wide policy

Explanation

Comparability requires common definitions and calibrated scales so that a High rating means the same thing everywhere. Unit-specific scales and ad hoc frequencies undermine aggregation, and restricting to past losses removes the forward-looking purpose of RCSA.

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