FRM Part II · FRM Exam Part II · Risk Identification
A bank's operational risk team asks each business unit manager to identify key risks in their area, rate the likelihood and impact of each risk, and evaluate how well existing controls work. Which description best characterizes this activity?
This is a Risk and Control Self-Assessment. Business line managers, the first line of defense, identify their own risks, rate likelihood and impact, and judge control effectiveness. It differs from internal audit, which is independent, and from model backtesting or external scenario workshops.
- AA Risk and Control Self-Assessment, in which the first line assesses its own risks and controlsCorrect
- BAn independent internal audit review performed by the third line of defense
- CA backtest of the bank's operational risk capital model against realized losses
- DA scenario analysis workshop led exclusively by external consultants
Explanation
RCSA is a process where business units themselves identify and assess inherent risks and control effectiveness. Internal audit is independent and not self-assessment. Backtesting compares model outputs to outcomes, and the activity described is not led by consultants.
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