FRM Part II · FRM Exam Part II · Introduction to Operational Risk and Resilience
Under the Basel definition used in operational risk frameworks, operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Which of the following is explicitly included in this definition?
Legal risk is explicitly included in the Basel definition of operational risk, which covers losses from failed processes, people, systems or external events. Strategic and reputational risk are excluded from the regulatory definition, and business risk from changing demand is a strategic matter rather than operational.
- ALegal riskCorrect
- BStrategic risk
- CReputational risk
- DBusiness risk from changing market demand
Explanation
The Basel definition explicitly includes legal risk, such as fines, penalties and settlements from supervisory action. It explicitly excludes strategic and reputational risk. Business risk from demand shifts is a strategic matter and is not part of the definition.
Did you get it right without looking?
One question tells you little. A timed set on Introduction to Operational Risk and Resilience shows your real accuracy, how long you take and where you lose marks.
More Introduction to Operational Risk and Resilience questions
- A bank tracks the number of unreconciled payment items at each month end and sets amber and red thresholds, escalating to senior management …
- Which responsibility is most appropriately assigned to the board of directors, rather than senior management, in an operational risk governa…
- Which activity most clearly demonstrates the 'learning and adapting' element of operational resilience after a significant outage?
- A bank's trading assistant, acting beyond his authority, books and conceals a series of unauthorized positions that later cause a large loss…
- A bank tracks the number of failed settlements per month as a key risk indicator (KRI) with an amber threshold of 20 and a red threshold of …
- A bank's risk team is classifying a loss event. A trader entered a trade with the wrong counterparty because of a keying error, and the bank…