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FRM Part II · FRM Exam Part II · Case Study: Third-party Risk Management

A regional bank relies on a single cloud provider to host its payment processing platform. The provider suffers a multi-day outage, and the bank cannot process customer payments. Which concept best describes the risk the bank has failed to manage?

The bank has failed to manage concentration risk from depending on a single critical third party. With all payment processing hosted by one cloud provider and no alternative, the provider's outage directly stopped the bank's critical service, exposing a lack of operational resilience.

  1. AConcentration risk arising from dependence on one critical third partyCorrect
  2. BMarket risk arising from changes in the value of its trading positions
  3. CBasel III leverage ratio breach
  4. DInterest rate risk in the banking book

Explanation

The bank depends on one provider for a critical service with no viable alternative, which is a classic third-party concentration risk. The outage then flowed directly into an operational resilience failure. The other options describe unrelated risk categories.

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