FRM Part II · FRM Exam Part II · Risk Identification
An operational risk manager wants to identify emerging risks that may not yet appear in the bank's loss data or risk taxonomy. Which approach is MOST suitable?
Horizon scanning combined with scenario workshops involving business, technology and external experts is most suitable, because emerging risks have no loss history. Results should be fed into the risk register. Internal loss data models, existing taxonomies and breach-triggered additions are all backward-looking or reactive.
- ACalibrating a loss distribution approach model to the last five years of internal loss data
- BRunning horizon scanning and scenario workshops with business, technology and external experts, and feeding the results into the risk registerCorrect
- CWaiting until a risk indicator breaches its limit before adding the risk to the register
- DLimiting the review to risks already listed in the existing taxonomy
Explanation
Emerging risks lack historical loss data, so forward-looking, judgment-based tools such as horizon scanning and scenario workshops are needed. Loss-data models and existing taxonomies look backward, and waiting for indicator breaches is reactive.
Did you get it right without looking?
One question tells you little. A timed set on Risk Identification shows your real accuracy, how long you take and where you lose marks.
More Risk Identification questions
- A bank scores RCSA risks using inherent risk = likelihood x impact on 1-5 scales. For a process, likelihood is 4 and impact is 5. The key co…
- A bank's operational risk team asks each business unit manager to identify key risks in their area, rate the likelihood and impact of each r…
- A bank is reviewing a 5 million loss. A vendor's software update (an external event) failed because internal change management did not requi…
- A bank compares its RCSA results with other operational risk data. The fraud RCSA for retail lending rates residual risk as Low and controls…
- A bank's operational risk function is building a taxonomy so that loss events can be classified consistently across business lines. Which de…
- A bank's operational risk team wants to identify where errors, delays and control gaps could arise in its trade settlement activity. They do…