Skip to content

FRM Part II · FRM Exam Part II · Governance

A bank's chief risk officer notes that the credit risk team that independently monitors portfolio concentrations and challenges the lending business's risk ratings also reports on limit breaches to the board. Which line of defense does this team represent, and what is its key attribute?

This team is the second line of defense. Its defining attribute is independent oversight: it monitors risk, challenges the business's ratings and decisions, and reports limit breaches, without owning the revenue-generating activity. Internal audit, the third line, gives assurance on the framework overall.

  1. ASecond line, independent oversight and challenge of risk-takingCorrect
  2. BFirst line, ownership of risk decisions
  3. CThird line, independent assurance to the board on the overall control framework
  4. DSecond line, direct responsibility for approving each loan to maximize revenue

Explanation

Independent monitoring, challenge of ratings and limit reporting are classic second line functions. The third line (internal audit) provides assurance on the whole framework, not ongoing risk monitoring. Maximizing revenue through loan approval is a business objective, not a second line role.

Did you get it right without looking?

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

Practise GovernanceFree diagnostic mock

More Governance questions