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FRM Part II · FRM Exam Part II · Risk Identification

A risk manager reviews RCSA results across 20 business units and notices that nearly all units rate their controls as 'Effective', yet loss data show frequent control-failure events in several of those units. Which action would most appropriately address the weakness in the RCSA process?

The best action is to add second line challenge and validate RCSA ratings against loss events, key risk indicators and audit findings. The mismatch between favorable self-ratings and actual control failures signals bias, which independent challenge and data triangulation help correct.

  1. AIntroduce challenge by the second line and compare RCSA ratings with loss events, key risk indicators and audit findingsCorrect
  2. BRemove the control effectiveness rating and rely only on inherent risk scores
  3. CReduce the frequency of RCSAs so that units spend less time on self-rating
  4. DReplace the RCSA with a capital allocation based solely on prior-year losses

Explanation

The pattern suggests optimism bias or lack of challenge. Second line challenge and triangulation with loss data, KRIs and audit findings improve reliability. Dropping control ratings loses key information, less frequent assessment worsens staleness, and loss-only capital is backward looking and ignores forward-looking assessment.

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