Skip to content

ACCA Strategic Professional · Strategic Business Leader · Identification, assessment and measurement of risk

Lumen Bank has a risk-averse stated appetite, but its traders receive large bonuses tied only to annual trading profit, and several have breached position limits without sanction. What does this most directly indicate about the bank's risk management?

It shows a gap between the stated risk appetite and the actual risk culture. Profit-only bonuses encourage risk taking and unsanctioned limit breaches show weak enforcement, so behaviour contradicts the conservative appetite statement. This is an alignment and governance failure rather than a deliberately high tolerance.

  1. AThe appetite statement is well designed because it is conservative
  2. BA gap between stated appetite and actual risk culture, driven by incentives and weak enforcementCorrect
  3. CThe bank has a high risk tolerance by design
  4. DThe bank is applying risk transfer to the traders

Explanation

The behaviour and reward system encourage risk taking contrary to the stated appetite, and unpunished limit breaches show weak enforcement. This is a culture and alignment failure, not a deliberate high tolerance, since tolerance would be formally set and approved.

Did you get it right without looking?

One question tells you little. A timed set on Identification, assessment and measurement of risk shows your real accuracy, how long you take and where you lose marks.

Practise Identification, assessment and measurement of riskFree diagnostic mock

More Identification, assessment and measurement of risk questions