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FRM Part I · FRM Exam Part I · The Governance of Risk Management

Which role is most appropriate for a Chief Risk Officer (CRO) in a well-governed financial institution?

A well-governed firm's CRO reports to the CEO and has direct access to the board or its risk committee, independent of revenue generation. Reporting to trading or being tied to profit goals would undermine independence, and approving every transaction is not the role.

  1. AReporting to the CEO and having direct access to the board or its risk committee, independent of revenue generationCorrect
  2. BReporting solely to the head of trading to stay close to risk takers
  3. CApproving all individual client transactions
  4. DBeing primarily responsible for generating profits from risk-taking activities

Explanation

A CRO should have sufficient stature and independence, typically reporting to the CEO with direct access to the board or risk committee. Reporting to trading or being responsible for profits conflicts with independence, and approving every transaction is impractical and not the CRO's role.

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