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FRM Part II · FRM Exam Part II · Digital Resilience and Financial Stability: The Quest for Policy Tools in the Financial Sector

A bank's board asks why regulators emphasize operational resilience testing, such as scenario exercises with severe but plausible cyber events, in addition to preventive controls. Which is the best answer?

Regulators emphasize testing because some disruptions cannot be prevented, so firms must show they can keep critical services running and recover within their tolerances. Severe but plausible scenarios reveal weaknesses that preventive controls alone do not, supporting resilience rather than assuming perfect prevention.

  1. ABecause controls guarantee prevention, testing is only a formality
  2. BBecause some disruptions are unavoidable, testing assesses the ability to continue critical services and recover within tolerancesCorrect
  3. CBecause testing replaces the need for incident reporting
  4. DBecause testing is used to calculate regulatory credit risk weights

Explanation

Resilience assumes incidents will occur; testing verifies that critical services can be maintained or restored within tolerance. Controls cannot guarantee prevention, and testing does not replace reporting or set credit risk weights.

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