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FRM Part II · FRM Exam Part II · Risk Mitigation

Under the three lines model commonly used in operational risk governance, which activity belongs to the second line rather than the first or third?

Independently challenging business self-assessments and setting the risk framework is a second-line activity. The first line owns and runs controls, while internal audit as the third line provides independent assurance to the board. The second line provides oversight and challenge.

  1. ADesigning and operating day-to-day controls in the business unit
  2. BIndependently challenging business unit risk and control self-assessments and setting the risk frameworkCorrect
  3. CProviding independent assurance to the board on the effectiveness of governance and controls
  4. DExecuting trades within approved limits

Explanation

The second line (risk management and compliance) sets the framework and provides oversight and challenge to the first line. The first line owns and operates controls; the third line, internal audit, gives independent assurance to the board.

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