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FRM Part II · FRM Exam Part II · Digital Resilience and Financial Stability: The Quest for Policy Tools in the Financial Sector

Which policy tool is most directly aimed at reducing systemic risk from financial institutions' dependence on a small number of critical third-party technology providers?

Direct oversight or designation of critical third-party providers, combined with incident reporting and exit or substitution planning, is the tool most targeted at technology concentration. It addresses shared dependency itself, whereas the other options address credit, capital or deposit issues.

  1. ARaising the countercyclical capital buffer on mortgage lending
  2. BDirect oversight or designation regimes for critical third parties, with incident reporting and exit or substitution planningCorrect
  3. CLowering the risk weights on technology-related loans
  4. DLimiting deposit insurance coverage

Explanation

Third-party concentration is addressed by oversight of critical providers, incident reporting, resilience testing and exit planning. Capital buffers on mortgages, risk weights and deposit insurance limits do not target technology dependency.

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