Skip to content

FRM Part II · FRM Exam Part II · Introduction to Operational Risk and Resilience

A bank's risk appetite statement for operational risk caps annual operational losses at USD 50 million. Year-to-date losses are USD 46 million at the end of the third quarter, and a key risk indicator has breached its escalation threshold. According to good governance practice, what should the second line do first?

The second line should escalate the threshold breach promptly to senior management and the risk committee under the framework and challenge the first line's remediation plan. Thresholds exist to trigger early action; waiting, shifting control ownership to audit, or raising the appetite would undermine governance.

  1. AEscalate the breach to senior management and the risk committee under the defined framework, and challenge the first line's remediation planCorrect
  2. BWait until year-end before reporting, since the cap has not yet been exceeded
  3. CInstruct internal audit to take over the affected controls
  4. DRevise the appetite upward to USD 60 million to avoid a formal breach

Explanation

Appetite metrics and thresholds exist to trigger timely escalation before limits are breached. The second line should escalate per the framework and challenge the remediation plan. Waiting, moving control ownership to audit, or loosening the limit undermines governance.

Did you get it right without looking?

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

Practise Introduction to Operational Risk and ResilienceFree diagnostic mock

More Introduction to Operational Risk and Resilience questions