FRM Part II · FRM Exam Part II · Risk Identification
A bank's risk function runs a horizon-scanning exercise for emerging operational risks. Which output is most consistent with identifying an emerging risk, as opposed to an existing one?
The generative AI adoption example is an emerging risk because exposure, controls and loss history are not yet established. Such risks are identified through horizon scanning and scenarios and watched through early signals, unlike known risks such as past fraud trends or existing KRI breaches.
- AA recurring trend in last year's internal fraud losses from a known product
- BA new risk arising from rapid adoption of generative AI tools by staff, where exposure, controls and loss history are not yet established, assessed with scenarios and monitored through early signalsCorrect
- CA quarterly update of an existing KRI whose threshold was breached
- DA control test result for reconciliation of nostro accounts
Explanation
Emerging risks are new or evolving, with limited loss data and uncertain exposure, so they are identified through horizon scanning and scenarios and tracked with early signals. The other items concern known risks with established data or controls.
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