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FRM Part II · FRM Exam Part II · Risk, Regulation and Organizational Structure

A fund's board is reviewing its risk committee charter. Which responsibility is most appropriately retained by the board (or its risk committee) rather than delegated entirely to management?

The board or its risk committee should set the firm's risk appetite and approve major risk limits. These are strategic oversight duties. Daily reconciliations, hedge selection and model parameter calibration are operational tasks that management and control functions carry out, with the board monitoring through reports.

  1. ASetting the firm's risk appetite and approving major risk limitsCorrect
  2. BDaily reconciliation of trade positions to custodian records
  3. CSelecting the intraday hedging instruments for each position
  4. DCalibrating the parameters of the VaR model each morning

Explanation

Boards are responsible for setting risk appetite and approving the overall limit framework, while management implements it. Daily reconciliations, hedge selection and model calibration are operational tasks that belong to management and control functions. Board involvement in those would blur governance and management roles.

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