FRM Part II · FRM Exam Part II · Risk Identification
A bank's horizon scanning exercise highlights that a rapidly growing fintech partner may become a critical dependency for its customer onboarding. No incidents have yet occurred. What is the most appropriate next step in the risk identification process?
The bank should log the emerging risk, build plausible failure scenarios and assess the effect on onboarding processes, then decide on controls or contingency plans. Waiting for losses is reactive, and ending the partnership or simply buying insurance would precede proper assessment.
- ARecord nothing until an incident occurs and loss data is available
- BLog the emerging risk, develop plausible scenarios of partner failure, and assess potential impact on onboarding processes to inform whether controls or contingency plans are neededCorrect
- CImmediately terminate the partnership to eliminate the risk
- DTransfer the risk entirely to insurers without further analysis
Explanation
Emerging risks without loss history should be captured and explored through scenario analysis and process impact assessment to decide on responses. Waiting for losses is reactive, terminating is not proportionate before assessment, and insurance without analysis ignores what is exposed and whether cover would respond.
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