FRM Part I · FRM Exam Part I · Operational Risk

After a rogue trading incident, a bank's review finds that warnings from internal audit and several limit breaches were repeatedly escalated but management accepted explanations without verification. Which lesson from this case is most relevant?

The key lesson is that a strong risk culture means challenging unusual profits and acting on red flags such as repeated limit breaches and audit warnings, rather than accepting unverified explanations from the business.

1. ALimit breaches are immaterial if profits are consistently positive
2. BStrong risk culture requires challenging unusual profits and acting on red flags rather than accepting unverified explanationsCorrect
3. COperational risk is best managed by removing all trading limits
4. DAudit findings should be reported only to the business line concerned