FRM Part I · FRM Exam Part I · Operational Risk
Under the Basel framework, operational risk is defined as 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 as stated by Basel?
Legal risk is explicitly included in the Basel definition of operational risk. The definition covers losses from failed processes, people, systems or external events, including legal exposures like fines and settlements, while strategic and reputational risk are excluded from the regulatory definition.
- ALegal riskCorrect
- BStrategic risk
- CReputational risk
- DBusiness-cycle risk
Explanation
The Basel definition includes legal risk, such as fines, penalties and punitive damages from supervisory actions or private settlements. It explicitly excludes strategic and reputational risk. Business-cycle risk is a market and macro matter, not part of the definition.
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