Skip to content

FRM Part II · FRM Exam Part II · Risk Governance

A bank's board wants its risk appetite framework to be effective in practice. Which of the following actions is most consistent with sound governance of the risk appetite statement?

An effective risk appetite statement is approved by the board, tied into strategy and business planning, and monitored through regular reporting and escalation of limit breaches. It should be reviewed periodically rather than fixed once or set solely by the chief risk officer.

  1. AHaving the risk appetite statement approved by the board, linked to strategy and business planning, and monitored with regular reporting on breaches of limitsCorrect
  2. BHaving the chief risk officer set the statement independently without board involvement to maintain objectivity
  3. CSetting the statement once at inception and revising it only after a regulatory finding
  4. DExpressing it only in qualitative terms so that business lines retain flexibility in decisions

Explanation

Sound governance requires board approval, integration with strategy, capital and business planning, and ongoing monitoring with escalation of breaches. The board owns the appetite, with the CRO and management developing and implementing it. Static, purely qualitative, or CRO-only statements fail these expectations.

Did you get it right without looking?

One question tells you little. A timed set on Risk Governance shows your real accuracy, how long you take and where you lose marks.

Practise Risk GovernanceFree diagnostic mock

More Risk Governance questions