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FRM Part II · FRM Exam Part II · Risk, Regulation and Organizational Structure

At an asset manager, traders who breach risk limits are rarely questioned if the desk is profitable, and junior analysts report that raising concerns about a star portfolio manager is discouraged. Which assessment is most consistent with sound risk culture principles?

The culture is weak. Sound risk culture needs leadership tone, consistent accountability and open challenge. Excusing limit breaches by profitable desks and discouraging concerns about star managers shows that limits are not enforced, so the framework exists only on paper.

  1. AThe culture is weak because tone from the top and accountability are inconsistent with the stated limitsCorrect
  2. BThe culture is strong because profitable desks demonstrate effective risk-taking
  3. CThe culture is neutral because culture cannot influence risk outcomes
  4. DThe culture is strong because limits exist, regardless of enforcement

Explanation

Sound risk culture requires consistent accountability, open challenge and leadership that enforces limits regardless of profit. Tolerating breaches by profitable desks and discouraging escalation undermines the framework, so limits on paper are not enough.

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