FRM Part II · FRM Exam Part II · Governance
Following a review, a regulator finds that a bank's CRO reports to the head of the business lines and has no direct access to the board risk committee. Which regulatory expectation on risk governance is most directly violated?
The violated expectation is that the risk function be independent of business lines, with the CRO having sufficient stature and direct access to the board or its risk committee. Reporting to a business head compromises independence and could filter risk information reaching the board.
- AThe CRO must hold a qualification in accounting
- BThe CRO must approve every individual credit decision
- CThe CRO must be responsible for setting each desk's profit targets
- DThe risk function must be independent of business lines, with the CRO having sufficient stature and direct access to the boardCorrect
Explanation
Supervisory expectations require the CRO to have independence, stature and unimpeded access to the board or its risk committee. The other options describe duties that are not expected: CROs do not approve every credit decision or set profit targets.
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