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FRM Part II · FRM Exam Part II · Introduction to Operational Risk and Resilience

At a mid-sized bank, the head of the trading desk's business unit has asked the operational risk function to approve a new product launch checklist that the business unit itself designed. Under the three lines of defense model, which statement best describes the appropriate role of the operational risk function (second line)?

The second line should provide independent challenge and oversight of the business's risk assessment and the framework used, while the first-line business unit keeps ownership of the risk. Assurance to the board belongs to internal audit, and executing controls is a first-line duty.

  1. AOwn and manage the operational risks of the product, since it has the most risk expertise
  2. BProvide independent challenge and oversight of the business's risk assessment, while the business unit retains ownership of the riskCorrect
  3. CPerform the independent assurance over the product launch process on behalf of the board
  4. DExecute the controls in the checklist so the business unit can focus on revenue

Explanation

In the three lines model, the first line (business) owns and manages risk and controls. The second line sets framework, monitors and provides independent challenge without taking ownership. Independent assurance to the board is the third line (internal audit) role, so options taking ownership or assurance are wrong.

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