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

In an enterprise risk management governance structure using the three lines model, which activity belongs to the second line?

Monitoring limit breaches and challenging business-line risk assessments through an independent risk function is a second-line activity. The first line owns risk, the second oversees and challenges it, and internal audit as the third line provides independent assurance to the board.

  1. AA trading desk manager taking positions within assigned limits
  2. BAn independent risk function monitoring limit breaches and challenging business-line risk assessmentsCorrect
  3. CInternal audit providing independent assurance to the audit committee on the effectiveness of controls
  4. DThe external auditor certifying the annual financial statements

Explanation

The first line owns and manages risk, the second line (risk management and compliance) oversees, monitors and challenges, and the third line (internal audit) gives independent assurance. Internal audit is third line, not second.

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