FRM Part II · FRM Exam Part II · Case Study: Third-party Risk Management
Before signing a contract with a prospective provider of loan-servicing, which activity should a bank's third-party risk framework place first in the lifecycle?
Risk assessment of the activity and due diligence on the provider come first. The third-party lifecycle begins with planning, risk assessment and due diligence before contracting, then proceeds to ongoing monitoring and finally renewal or termination and exit.
- ATermination and exit execution
- BOngoing performance reporting review
- CRisk assessment of the activity and due diligence on the providerCorrect
- DAnnual contract renewal negotiation
Explanation
The usual lifecycle runs from planning and risk assessment, through due diligence, contracting, ongoing monitoring, to termination or exit. Pre-contract, the bank must assess the activity's risk and the provider's capability. The other options occur after the contract exists.
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