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FRM Part II · FRM Exam Part II · Risk Governance

In a bank using the three lines of defence model as described in the Basel operational risk principles, which statement best describes the role of the corporate operational risk management function (CORF)?

The corporate operational risk function sits in the second line. It designs and maintains the framework and independently challenges the first line, while business units keep ownership of their risks. Independent assurance over the whole framework comes from internal audit, the third line.

  1. AIt is a second-line function that designs and maintains the framework and challenges the first line, while business units remain responsible for managing risksCorrect
  2. BIt replaces business line management as the owner of day-to-day operational risks
  3. CIt performs the independent periodic review of the framework as the third line
  4. DIt is responsible only for calculating regulatory capital and has no role in monitoring

Explanation

The CORF is the second line: it develops and maintains the framework, challenges and monitors the first line's risk assessments and reporting. Business line management owns and manages risks day to day. Independent review of the framework belongs to the third line, internal audit.

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