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FRM Part II · FRM Exam Part II · Contingency Funding Planning

A bank's internal audit reviews its CFP and finds that the crisis team members' contact lists are current, but no simulation involving the board, treasury, legal and communications has been run in three years. Which finding is most appropriate?

The appropriate finding is that the plan has a testing deficiency. Regular cross-functional simulations are needed to confirm that roles, decision-making speed and communications actually work under pressure. Current contact lists alone do not prove the plan is operational, and testing should not wait for a ratio breach.

  1. ANo issue, because current contact lists are sufficient evidence that the plan is operational
  2. BThe plan is deficient in testing; regular exercises across functions are needed to confirm roles, decision speed and communication work in practiceCorrect
  3. CThe plan should be replaced by relying on central bank facilities, which removes the need for testing
  4. DTesting is only needed if the bank's liquidity coverage ratio falls below the regulatory minimum

Explanation

A CFP must be tested to verify that roles, escalation and communications function under pressure. Contact lists alone do not show this. Central bank reliance is not a substitute, and testing should not depend on a ratio breach.

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