FRM Part II · FRM Exam Part II · Governance
A bank's board wants to strengthen risk culture. Which action is most consistent with the principle that the chief risk officer (CRO) must be able to challenge business lines effectively?
The CRO should have direct access to the board risk committee, and removal should need board approval. This protects independence and stature, letting the CRO challenge business lines without commercial pressure, unlike reporting to a business head or having pay linked to trading profits.
- AThe CRO reports solely to the head of the largest business line to ensure commercial awareness
- BThe CRO has direct access to the board risk committee and the CRO's removal requires board approvalCorrect
- CThe CRO's bonus is set by the head of trading based on trading profits
- DThe CRO is appointed for a one-year term renewable at management's discretion
Explanation
Independence and stature of the CRO are supported by direct board access and board oversight of appointment and removal. Reporting to a business head, pay tied to trading profits, or management-controlled short renewals all undermine the ability to challenge.
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