FRM Part II · FRM Exam Part II · Digital Resilience and Financial Stability: The Quest for Policy Tools in the Financial Sector

A financial authority is comparing two approaches to digital resilience regulation: (A) prescriptive, rule-based requirements specifying exact controls; (B) principles- and outcomes-based requirements focused on keeping critical services within tolerance. Which assessment is most consistent with the policy trade-offs discussed for this area?

Outcome-based regulation is flexible as technology and threats change but depends on strong supervisory judgement and testing. Prescriptive rules give clarity and comparability but can become outdated and promote checkbox compliance. The other statements reverse these trade-offs.

1. AApproach A adapts faster to new threats because rules are rarely revised
2. BApproach B cannot be supervised because it has no measurable objectives
3. CApproach A is more adaptable to rapidly evolving technology, while approach B ensures uniform compliance across institutions
4. DApproach B offers flexibility as technology and threats evolve but relies on strong supervisory judgement and testing, while A gives clarity yet risks becoming outdated and encouraging checkbox complianceCorrect