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FRM Part II · FRM Exam Part II · Introduction to Operational Risk and Resilience

In the three lines model commonly used in operational risk governance, which activity is the responsibility of the second line rather than the first line?

Independently challenging business line risk assessments and monitoring against risk appetite is a second line role. The first line owns and manages risks and controls day to day, while the third line, internal audit, provides independent assurance to the board on overall governance effectiveness.

  1. AOwning and performing day-to-day controls in a trading desk
  2. BIndependently challenging business line RCSA results and monitoring the risk appetiteCorrect
  3. CProviding independent assurance to the board on the effectiveness of governance
  4. DRemediating control gaps identified in a process the manager runs

Explanation

The second line (independent operational risk function) sets the framework, and challenges and monitors first-line risk assessments against appetite. The first line owns risks and controls; the third line, internal audit, gives independent assurance.

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