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 EXCLUDED from this definition?
Strategic and reputational risk are excluded from the Basel operational risk definition. The definition covers losses from inadequate or failed processes, people, systems or external events, and it explicitly includes legal risk, so the other three items fall within operational risk.
- ALegal risk
- BStrategic and reputational riskCorrect
- CLosses from external fraud
- DLosses from system failures
Explanation
The Basel definition includes legal risk but excludes strategic and reputational risk. External fraud and system failures are covered by the 'external events' and 'systems' elements respectively.
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