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FRM Part II · FRM Exam Part II · Risk Governance

A bank's operational risk function receives monthly loss data from business lines. The Chief Risk Officer notices that several divisions record losses using different definitions and timing, making aggregated reports unreliable. Which action most directly addresses this weakness in risk data aggregation and reporting?

The best action is to set a firm-wide data taxonomy and standard loss-event definitions with clear data ownership. The problem is inconsistent data, so standardization and accountability make reports comparable and reliable. Extra capital or more meetings leave the data flaws unresolved.

  1. AIncrease the frequency of board meetings so directors can review each division's reports separately
  2. BEstablish a common data taxonomy and loss-event definitions with clear data ownership across the firmCorrect
  3. CRaise the operational risk capital buffer to compensate for uncertainty in the reported figures
  4. DAllow each business line to choose its own reporting format to preserve local accuracy

Explanation

Inconsistent definitions and timing are a data governance problem. A common taxonomy, standard definitions and accountable data owners make the data comparable and aggregable. Extra capital or more meetings do not fix the underlying data quality, and letting divisions choose formats worsens it.

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