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FRM Part II · FRM Exam Part II · Risk Mitigation

A broker-dealer runs a business impact analysis for its trade settlement function. Management finds that the function's RTO of 8 hours is shorter than the 12 hours the backup data-centre vendor contractually needs to bring the environment online. What is the most appropriate response?

The bank should close the gap by upgrading recovery capability, such as a warm standby or revised vendor terms, or have senior management formally accept the residual risk. Ignoring the mismatch, quietly lengthening the RTO or dropping the function from scope would leave a critical process exposed.

  1. AKeep the 8-hour RTO and document it as met, since the contract is a vendor issue
  2. BLengthen the RTO to 12 hours without further review, since the contract is binding
  3. CClose the gap by improving recovery capability, such as a warm standby or renegotiated vendor terms, or by formally escalating acceptance of the residual riskCorrect
  4. DRemove the settlement function from the plan's scope until the vendor is replaced

Explanation

A gap between required and achievable recovery times must be addressed: either strengthen capability or have senior management knowingly accept the residual risk. Reporting the RTO as met is wrong, silently relaxing it ignores business needs, and excluding a critical function undermines the plan.

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