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FRM Part II · FRM Exam Part II · Risk Governance

Under the three lines of defense model, which activity is most appropriately performed by the second line rather than the first or third?

Independently challenging business self-assessments and monitoring risk appetite limits is a second-line activity. The first line owns and runs controls, while the third line, internal audit, provides independent assurance to the audit committee on the whole framework.

  1. AOwning and executing day-to-day controls within a trading desk
  2. BIndependently challenging the business units' risk and control self-assessment results and monitoring risk appetite limitsCorrect
  3. CPerforming an independent assurance review of the effectiveness of the risk management framework for the audit committee
  4. DApproving individual client transactions

Explanation

The second line (independent risk and compliance) sets the framework, monitors and challenges first-line assessments. Executing controls belongs to the first line, and independent assurance to the board's audit committee is the third line's role. Approving transactions is a business activity.

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