FRM Part II · FRM Exam Part II · Risk Identification
Which of the following BEST describes why emerging risk identification should be linked to the bank's risk appetite and strategic planning?
Linking emerging risk identification to risk appetite and strategy ensures potential new threats are considered when setting objectives and limits, so the bank can respond before they crystallise. It does not eliminate risks, replace self-assessments, or guarantee lower regulatory capital.
- AIt allows management to eliminate all new risks before they materialise
- BIt ensures potential new threats are considered when setting strategy and limits, so the bank can respond before they crystalliseCorrect
- CIt replaces the need for periodic risk and control self-assessments
- DIt guarantees that regulatory capital requirements will fall
Explanation
Linking emerging risks to appetite and strategy means threats inform decisions and limits early, enabling proactive response. It cannot eliminate all new risks, does not replace RCSAs, and has no assured effect on capital.
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