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FRM Part II · FRM Exam Part II · Integrated Risk Management

Which of the following is the strongest indicator that a firm's risk culture is sound?

A sound risk culture is best indicated by employees feeling safe to report errors and near misses, with those reports leading to visible corrective action. Absence of reported losses may signal concealment, very wide limits make compliance meaningless, and risk department size does not measure behavior.

  1. ANo operational loss events are reported to senior management in a year
  2. BEmployees are comfortable reporting errors and near misses, and these reports lead to visible corrective actionCorrect
  3. CRisk limits are rarely breached because they are set very wide
  4. DThe risk department is large relative to the front office

Explanation

Open reporting of errors and near misses followed by visible action shows trust and accountability. Zero reported events more likely signals under-reporting, wide limits make non-breaches meaningless, and department size says nothing about behavior.

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