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FRM Part I · FRM Exam Part I · The Governance of Risk Management

Which action by a board of directors best demonstrates its role in setting a strong risk culture?

The board best demonstrates strong risk culture by setting the tone at the top, supporting open challenge of risk-taking, and holding senior management accountable for breaches. Culture is shaped by visible leadership behavior and accountability, not by delegation to audit, profit-only messaging, or informal verbal guidance.

  1. ADelegating all risk culture matters to the internal audit function and reviewing results only after regulatory examinations
  2. BSetting the tone at the top, consistently supporting challenge of risk-taking, and holding senior management accountable for risk-culture breachesCorrect
  3. CFocusing communication on profit targets and leaving risk messages to the risk department
  4. DReplacing the risk appetite statement with informal verbal guidance from the CEO

Explanation

Risk culture is driven by tone at the top, with the board and senior management modeling expected behavior, encouraging open challenge, and enforcing accountability. Delegating entirely to audit, focusing only on profit, or dropping a formal RAS weakens governance.

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