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

A regulator proposes a systemic tool that sets an impact tolerance for important business services, such as the maximum tolerable disruption, and requires firms to show they can remain within it under severe but plausible scenarios. What is the main rationale for this tool in the context of financial stability?

Impact tolerances shift the emphasis from preventing every incident to ensuring critical services can keep running or be restored within acceptable limits. That limits harm to customers and the wider system, though it cannot eliminate incidents or replace capital.

  1. AIt eliminates the probability of any cyber incident
  2. BIt shifts focus from preventing every incident to ensuring critical services can continue or be restored, limiting harm to the systemCorrect
  3. CIt replaces all capital requirements for operational risk
  4. DIt guarantees that insurance will cover all losses

Explanation

Impact tolerances accept that incidents will occur and emphasise continuity of critical services. This limits systemic harm. They do not remove incident probability, substitute for capital, or guarantee insurance recoveries.

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