FRM Part II · FRM Exam Part II · Governance
Which statement best describes the board's role in setting the bank's risk appetite, as expected by supervisors?
The board approves the risk appetite statement, ensures it fits strategy and capital planning, and holds senior management accountable for staying within it. Detailed desk limits are a management responsibility, and the board cannot hand accountability to the CRO or regulators.
- AThe board delegates risk appetite entirely to the CRO and reviews it only if a loss occurs
- BThe board approves the risk appetite statement, aligned with strategy and capital planning, and holds senior management accountable for operating within itCorrect
- CThe board sets detailed trading limits for each desk and individual trader
- DRisk appetite is determined by regulators and the board simply adopts it
Explanation
Supervisory expectations place responsibility for approving risk appetite, consistent with strategy and capital, on the board, while management implements it through limits. Setting desk-level limits is a management task, and delegation solely to the CRO or regulators misplaces accountability.
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