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FRM Part II · FRM Exam Part II · Risk Reporting

A bank's operational risk team prepares a monthly report for the board risk committee. The board members have limited time and are not technical specialists. Which design choice best aligns with sound operational risk reporting practice for this audience?

The best design is a concise summary of key risk indicators measured against appetite thresholds, with detail available on request. Board reports should be tailored to the audience and support decisions, rather than overwhelm readers with raw loss data or unexplained model output.

  1. APresent a concise summary of key risk indicators against appetite thresholds, with drill-down detail available on requestCorrect
  2. BInclude every loss event recorded in the loss database, sorted by date, to ensure completeness
  3. CReport only events whose losses exceeded the bank's annual operational risk budget
  4. DProvide the full statistical output of the capital model, with no narrative commentary

Explanation

Effective reporting is tailored to the audience: senior bodies need concise, decision-useful information tied to risk appetite, with supporting detail available. Dumping all events or raw model output obscures the key messages. Reporting only budget-breaching events omits emerging issues and near misses.

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