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FRM Part II · FRM Exam Part II · Integrated Risk Management

A bank's three lines of defence model is part of its ERM framework. Which activity belongs to the second line?

The second line is the independent risk management function, which challenges business-unit risk assessments and monitors compliance with limits. Business managers owning risks are the first line, while internal audit providing independent assurance to the board is the third line.

  1. AThe independent risk management function challenging business-unit risk assessments and monitoring limit complianceCorrect
  2. BBusiness managers owning and controlling risks in daily operations
  3. CInternal audit providing independent assurance to the board on control effectiveness
  4. DExternal auditors certifying the financial statements

Explanation

The second line is the independent risk and compliance functions that set frameworks, challenge and monitor the first line. Business managers who own risk are the first line, and internal audit is the third line. External auditors are outside the model.

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