FRM Part II · FRM Exam Part II · Digital Resilience and Financial Stability: The Quest for Policy Tools in the Financial Sector
A regional bank runs its core payments platform, fraud monitoring and customer app on a single cloud provider. The risk team notes that an outage at that provider would disrupt all three at once. Which term best describes this exposure?
The exposure is third-party concentration risk. Because payments, fraud monitoring and the customer app all depend on one cloud provider, a single outage would disrupt all of them simultaneously, creating a shared single point of failure across the bank's critical services.
- AConcentration risk in a critical third-party providerCorrect
- BBasis risk between the bank's hedges and exposures
- CSettlement risk arising from delayed payment finality
- DModel risk arising from misspecified internal valuation models
Explanation
Placing several critical services with one provider creates a single point of failure shared across functions, which is third-party concentration risk. The other options describe hedging mismatch, payment finality and valuation model errors, none of which is the described exposure.
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