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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 wants to identify which ICT third parties are critical to the financial sector as a whole. Which criterion best indicates a provider should be designated as critical?

A provider should be designated critical when many financial firms rely on it for important functions and it is hard to substitute. High dependence plus low substitutability means its failure would spread across the sector, creating systemic impact.

  1. AThe provider's services are substitutable only with great difficulty and support important functions of many financial firmsCorrect
  2. BThe provider has the largest advertising budget in the technology sector
  3. CThe provider is headquartered in the same country as the regulator
  4. DThe provider serves exactly one financial institution with non-critical functions

Explanation

Criticality designation relies on the scale of reliance by financial firms and the difficulty of substituting the provider, since those drive systemic impact if it fails. Location or marketing spend does not measure systemic dependence, and a single-client non-critical service has limited impact.

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