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

In the three lines model of risk governance at a large bank, which activity is most appropriately performed by the second line?

The second line, comprising risk management and compliance, provides independent challenge, develops risk frameworks and monitors the first line's risk-taking. Owning risks daily is a first-line task, independent assurance belongs to internal audit, and approving risk appetite rests with the board.

  1. AOwning and managing day-to-day operational risks in a trading desk
  2. BProviding independent challenge, risk frameworks and monitoring of the first line's risk-takingCorrect
  3. CPerforming an independent assurance review of the whole risk governance framework for the audit committee
  4. DApproving the firm's strategy and risk appetite as the governing body

Explanation

The second line (risk management and compliance) sets frameworks, monitors and independently challenges the first line. Day-to-day ownership is first line, independent assurance is internal audit (third line), and approving appetite is a board responsibility.

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