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FRM Part II · FRM Exam Part II · Risk Governance

Which element is most essential for the board to fulfil its role in operational risk governance effectively?

The board needs timely, accurate and comprehensive risk reporting and must approve and periodically review the operational risk framework and appetite. Its role is oversight and challenge, not approving individual losses, running daily controls or handing accountability to consultants.

  1. ADirectly approving every operational loss event
  2. BReceiving timely, accurate and comprehensive risk reporting, and approving and periodically reviewing the framework and appetiteCorrect
  3. CDelegating all oversight to external consultants
  4. DManaging daily control activities in each business unit

Explanation

The board's role is oversight: approving and reviewing the framework and appetite, and challenging management using good-quality reporting. Day-to-day control and approval of individual losses are management duties, and oversight cannot be outsourced entirely.

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