Skip to content

FRM Part II · FRM Exam Part II · Risk Governance

A bank's operational risk management function, a second-line unit, is asked by the head of a business line to build and run the key risk indicators used for the line's own daily control monitoring, and to certify that the line's controls are working. What is the main governance concern?

The main concern is loss of independence and blurred accountability. The second line is meant to oversee and challenge, while the first line owns its controls. If the second line operates and certifies those controls, it would effectively be challenging its own work.

  1. AThe second line would lose the independence needed to challenge the first line, since it would be taking over first-line ownership of controlsCorrect
  2. BThe second line cannot use key risk indicators at all
  3. CThe third line would be unable to audit the business line
  4. DThe business line would face higher regulatory capital as a direct result

Explanation

The second line should provide framework, oversight and effective challenge, while the first line owns its controls and monitoring. If the second line runs and certifies first-line controls, it ends up reviewing its own work and blurs accountability. The other options do not follow directly from the arrangement.

Did you get it right without looking?

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

Practise Risk GovernanceFree diagnostic mock

More Risk Governance questions