FRM Part II · FRM Exam Part II · Governance
A bank's board wants to strengthen risk culture across its trading and lending divisions. Which of the following actions is most consistent with sound practice on tone from the top?
Sound tone from the top means the board and senior management visibly model and communicate expected risk behavior and enforce accountability when risk appetite is breached. Optional adoption, full delegation to compliance, or reviews only after losses do not embed a consistent risk culture.
- AThe board and senior management consistently demonstrate and communicate expected risk behaviors, and hold individuals accountable when they breach risk appetiteCorrect
- BThe risk function drafts a code of conduct, and business lines adopt it at their own discretion
- CThe CEO delegates all communication on risk culture to the compliance department to preserve independence
- DSenior management reviews risk culture only after a major loss event has occurred
Explanation
Tone from the top requires visible, consistent leadership behavior and accountability for breaches of risk appetite. Leaving adoption to discretion, full delegation, or reactive reviews fail to embed expected behavior across the firm.
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