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FRM Part I · FRM Exam Part I · The Building Blocks of Risk Management

Which action best demonstrates a risk management framework that links risk appetite to strategy and decision making, rather than treating it as a compliance exercise?

Using the board-approved appetite to set unit limits and regularly reporting and escalating breaches shows appetite embedded in strategy and decisions. Publishing a statement alone, delegating all risk to one department, or setting limits after losses leaves risk management as a compliance exercise.

  1. AUsing the board-approved appetite to set business unit limits, and reporting breaches and escalation to senior management regularlyCorrect
  2. BPublishing the appetite statement annually without reference to business plans
  3. CDelegating all risk decisions to the risk department so business lines need not consider appetite
  4. DSetting limits only after losses occur

Explanation

An effective framework embeds appetite in strategy, limits, monitoring and escalation, with accountability in the business lines. The other options isolate risk from decisions, remove front-line ownership, or are reactive rather than forward looking.

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