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FRM Part II · FRM Exam Part II · Integrated Risk Management

In a three-lines model for risk governance at a bank, which activity belongs to the second line?

The second line designs the risk framework, challenges business-line assessments and monitors aggregate exposure against risk appetite. Executing trades and operating controls are first-line responsibilities, while independent assurance to the audit committee is performed by internal audit as the third line.

  1. AExecuting trades within the desk's approved limits
  2. BProviding independent assurance to the audit committee on the effectiveness of controls
  3. CDesigning the risk framework, challenging business-line risk assessments and monitoring aggregate exposure against appetiteCorrect
  4. DOwning and operating the controls in the settlement process

Explanation

The second line (risk management and compliance) sets the framework, provides oversight and effective challenge, and monitors exposure against appetite. Trading and operating controls are first-line ownership. Independent assurance to the audit committee is the third line, internal audit.

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