FRM Part II · FRM Exam Part II · Risk Governance
In a bank's operational risk governance structure, the chief operational risk officer reports mainly to the head of a revenue-generating business line, who also sets the officer's bonus. Which governance weakness does this most directly illustrate?
This illustrates insufficient independence of the second line of defense. An operational risk officer who reports to, and is compensated by, a revenue-generating business head cannot credibly challenge that business, undermining the independent oversight the governance framework requires.
- AInsufficient independence of the second line of defenseCorrect
- BExcessive centralization of risk data
- COver-reliance on internal audit for risk identification
- DLack of a documented risk taxonomy
Explanation
Reporting to and being paid by a business head compromises the independence needed to challenge the first line. The scenario says nothing about data, audit reliance or taxonomy, so those options are not indicated.
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