FRM Part I · FRM Exam Part I · The Governance of Risk Management
In the three lines of defense model for risk governance at a bank, which function is the second line of defense?
The second line of defense is the independent risk management function, which sets risk limits and frameworks and monitors exposures. Business units that own risks form the first line, while internal audit, giving independent assurance to the board, forms the third line.
- ABusiness unit managers who originate and own the risks
- BThe independent risk management function that sets limits and monitors riskCorrect
- CThe internal audit function that provides independent assurance to the board
- DThe external auditor who reviews the financial statements
Explanation
The first line is the business units that take and own risk. The second line is the independent risk management and compliance oversight that sets frameworks, limits and monitors. Internal audit is the third line, so it is not the second.
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