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FRM Part II · FRM Exam Part II · Case Study: Investor Protection and Compliance Risks in Investment Activities

A fund administrator outage prevents an investment firm from producing NAVs for two days. The firm's resilience framework defines an impact tolerance of 24 hours for NAV production. Which statement best reflects sound operational resilience practice?

A two-day outage exceeds the 24-hour impact tolerance, so contingency arrangements should be invoked and the firm should review its severe-but-plausible scenario testing and third-party exit planning. Tolerance covers outsourced services too, and average SLA performance or having documentation does not show resilience.

  1. AThe tolerance is breached, so the firm should invoke contingency arrangements and assess whether severe but plausible scenario testing and third-party exit plans were adequateCorrect
  2. BTolerance applies only to internal systems, so outsourced services are excluded
  3. CThe breach is acceptable if the administrator's SLA was met on average over the year
  4. DResilience is satisfied once a business impact analysis document exists

Explanation

Impact tolerance is the maximum disruption to an important service, regardless of whether providers are internal or external. A 48-hour outage exceeds 24 hours, so the firm should act and review scenario testing and third-party dependency plans. Annual-average SLA metrics and mere documentation do not demonstrate resilience.

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