FRM Part I · FRM Exam Part I · Operational Risk

Under the three lines of defense model commonly used for operational risk governance in banks, which function is primarily responsible for independently assuring the board that the operational risk framework is working effectively?

Internal audit is the third line of defense and gives the board independent assurance that the operational risk framework and controls work effectively. Business lines own risk as the first line, and the independent risk function is the second line that designs the framework and challenges the business.

ABusiness line management, which owns and controls risks day to day
BThe independent operational risk management function, which designs the framework and challenges the business
CInternal audit, which provides independent assurance over the framework and controlsCorrect
DThe compliance function, which sets the firm's risk appetite

Explanation

Internal audit is the third line and provides independent assurance to the board and audit committee on the effectiveness of governance, risk management and controls. Business lines are the first line and own risk. The independent risk function is the second line and designs and challenges the framework, but it is not the independent assurance provider.

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Under the three lines of defense model commonly used for operational risk governance in banks, which function is primarily responsible for independently assuring the board that the operational risk framework is working effectively?

Explanation

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