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

Which element is most characteristic of the 'three lines' structure within a risk management framework?

In the three lines structure, business units own and manage risk, an independent risk function oversees and challenges them, and internal audit gives independent assurance. The other arrangements merge roles and remove the independence the model relies on.

  1. ABusiness units own and manage risk, an independent risk function oversees it, and internal audit provides independent assuranceCorrect
  2. BTraders set limits, approve their own exceptions, and report results to the board
  3. CInternal audit manages day-to-day risk-taking and the front office provides assurance
  4. DThe board delegates all risk decisions to the chief risk officer, who also runs trading

Explanation

In the three lines model, the first line (business) owns risk, the second line (risk management and compliance) oversees and challenges, and the third line (internal audit) gives independent assurance. The other options blur these roles or remove independence.

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