FRM Part II · FRM Exam Part II · Risk Governance
A bank's board wants to assess whether its risk culture is sound. Which of the following is the most reliable indicator that risk culture is embedded in day-to-day behavior rather than existing only on paper?
The best indicator is that staff at every level escalate concerns promptly without fear of penalty. Sound risk culture is demonstrated by actual behavior and openness, whereas updated manuals, larger risk teams and signed codes are formal items that can exist without influencing how people act.
- AThe risk policy manual was recently updated and approved by the board
- BEmployees at all levels escalate concerns promptly and are not penalized for raising bad newsCorrect
- CThe risk function has grown in headcount over the past three years
- DThe code of conduct is signed annually by every employee
Explanation
Risk culture is shown by observed behavior, particularly openness in escalating problems without fear of retaliation. Policies, headcount and annual attestations are formal artefacts that can exist without changing conduct, so they are weaker evidence.
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