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FRM Part I · FRM Exam Part I · Enterprise Risk Management and Future Trends

In a typical enterprise risk management governance structure, which of the following best describes the role of the chief risk officer (CRO)?

The CRO leads the independent risk management function, giving firm-wide oversight of risk and reporting directly to senior management and the board risk committee. The role is kept separate from revenue generation. Trade decisions belong to the business lines, and independent control testing belongs to internal audit.

  1. AOwning day-to-day risk taking decisions in each trading desk and approving all individual trades
  2. BProviding independent oversight of risk across the firm, with an escalation path to the board risk committee, without owning revenue-generating decisionsCorrect
  3. CActing as the internal auditor by testing the effectiveness of controls on behalf of the audit committee
  4. DSetting the firm's strategic business plan and return targets in place of the CEO

Explanation

The CRO leads the independent risk function, aggregates risk across the firm, and reports to the CEO and board risk committee. Independence from revenue generation is essential. Owning trade decisions is the first line's role, and testing controls independently belongs to internal audit (the third line).

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