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FRM Part I · FRM Exam Part I · Enterprise Risk Management and Future Trends

Which of the following is most consistent with the role of a chief risk officer (CRO) in an effective ERM framework?

The CRO should provide independent firm-wide risk oversight with a reporting line to the board's risk committee as well as senior management. Independence from revenue generation is key, so owning trading P&L or reporting to a business head would undermine the role.

  1. AOwning the profit and loss of all trading desks so that risk and revenue targets are aligned under one person
  2. BProviding independent oversight of firm-wide risk, with a reporting line to the board's risk committee in addition to senior managementCorrect
  3. CApproving individual trades before execution as the sole control against excessive risk-taking
  4. DReporting exclusively to the head of the largest business line to keep risk views consistent with business goals

Explanation

An effective CRO has independence from revenue generation and direct access to the board or its risk committee, while overseeing firm-wide risk. Owning P&L or reporting to a business head compromises independence. Being the sole trade approver misplaces first-line accountability.

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