FRM Part II · FRM Exam Part II · Governance
Under the three lines model commonly applied to credit risk governance, which activity belongs to the second line rather than the first or third?
Independent challenge of business-line exposures and aggregate portfolio reporting by the credit risk function is a second-line activity. Loan officers managing borrowers are first line, internal audit is third line, and external auditors sit outside the bank's internal lines of defence.
- AA loan officer collecting covenant compliance certificates from borrowers
- BInternal audit testing whether the credit approval process complies with policy
- CThe independent credit risk function challenging business-line exposures and aggregate portfolio reporting to senior managementCorrect
- DAn external auditor opining on loan loss provisions
Explanation
The second line is the independent risk management function that sets frameworks, challenges and reports on risk. Loan officers are first line, internal audit is third line, and external auditors are outside the three lines of the bank.
Did you get it right without looking?
One question tells you little. A timed set on Governance shows your real accuracy, how long you take and where you lose marks.
More Governance questions
- During a review, internal audit at a bank finds that the credit risk team has been helping relationship managers redesign the loan approval …
- A bank pays loan originators a bonus based solely on the volume of loans booked in the year, paid in full in cash immediately. Which governa…
- During a review, internal audit finds that a bank's credit risk management department has been co-designing loan pricing models with the tra…
- A bank's rating model is validated by the same team that developed it, and the credit officers who approve loans also set the rating overrid…
- Which statement best describes the board's role in setting the bank's risk appetite, as expected by supervisors?
- A bank's head of internal audit proposes that the audit function also take over day-to-day monitoring of credit limit breaches, since it alr…