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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 supervisor argues that digitalisation makes operational disruptions a potential source of systemic risk, not only a firm-level concern. Which feature of the digital financial system best supports this argument?

Interconnectedness through shared infrastructure and third parties. A cyber incident or outage at one critical node can spread to many counterparties and services quickly, so operational disruption can threaten the wider system and not just one firm's profits.

  1. ADigital firms hold higher capital buffers than traditional firms, which removes spillovers
  2. BInterconnectedness through shared infrastructure and third parties allows a cyber incident at one node to transmit to othersCorrect
  3. CDigital services always reduce the speed of contagion, so incidents stay local
  4. DOperational incidents affect only the institution's income statement and never its counterparties

Explanation

Systemic transmission arises from interconnection and shared dependencies, such as common vendors, payment systems and software. The other options are false or contradict the argument, since digital speed tends to accelerate, not slow, contagion.

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