FRM Part II · FRM Exam Part II · Risk Identification
Which of the following is an advantage of the RCSA approach in identifying operational risks, compared with relying only on historical loss data?
RCSA is forward looking: it uses business staff knowledge to identify emerging risks and control weaknesses before they cause losses. Unlike loss data it does not depend on past events, though it remains subjective and cannot guarantee finding every rare severe event.
- AIt is forward looking and captures emerging risks and control weaknesses that have not yet produced lossesCorrect
- BIt produces objective statistically precise loss distributions without expert judgment
- CIt eliminates the need for key risk indicators
- DIt guarantees that all low-frequency high-severity events are identified
Explanation
RCSA draws on staff knowledge to identify potential risks before losses occur. It is subjective, not statistically precise, complements rather than replaces KRIs, and cannot guarantee identification of all tail events.
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