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FRM Part I · FRM Exam Part I · Enterprise Risk Management and Future Trends

Under the three lines of defense model commonly used in risk governance, a trading desk head, the independent market risk function and internal audit are assigned, respectively, to which lines?

The trading desk head sits in the first line because the business owns and takes the risk. Independent market risk management is the second line, providing oversight and challenge. Internal audit is the third line, giving independent assurance to the board on the effectiveness of governance and controls.

  1. ASecond, first, third
  2. BFirst, second, thirdCorrect
  3. CFirst, third, second
  4. DThird, second, first

Explanation

Business units that take risk and own it form the first line. Independent risk management and compliance oversight form the second line. Internal audit provides independent assurance to the board and is the third line. Hence the desk head is first, market risk is second, and audit is third.

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