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FRM Part II · FRM Exam Part II · Risk Reporting

A bank's operational risk function produces reports for the board risk committee, business line heads and front-line managers. Which approach to report frequency best reflects sound risk reporting practice?

Report frequency should match each audience's decision needs and how quickly the risk changes. Operational managers need frequent, detailed information, while the board needs less frequent, summarized reports. Identical quarterly reports or exception-only reporting fail to serve differing users and hide trends.

  1. ASend every recipient the same quarterly report so that all users see identical information
  2. BSet frequency by the audience's decision needs and the risk's volatility, with more frequent and granular reports for operational managers and more summarized reports for the boardCorrect
  3. CReport only when a loss event exceeds the stated risk appetite, and otherwise send nothing
  4. DIncrease frequency for the board to daily so it can monitor all indicators directly

Explanation

Good practice tailors timing and detail to who uses the report and how fast the risk changes. Front-line managers need timely, granular data, while the board needs periodic, summarized, forward-looking information. A single identical quarterly report ignores differing needs, and exception-only reporting leaves no trend visibility.

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