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

Which statement best describes the role of the board of directors in risk governance, as reinforced by lessons from the financial crisis?

The board should approve and periodically review the firm's risk appetite and oversee that management keeps risk-taking within it. Setting daily desk limits is management's job, and the board cannot fully delegate or limit its oversight to annual reporting.

  1. AThe board should approve and regularly review the firm's risk appetite and ensure management's risk-taking stays within itCorrect
  2. BThe board should set individual trading limits for each desk daily
  3. CThe board should delegate all risk appetite decisions to the chief risk officer without review
  4. DThe board's duty on risk ends once the annual report is approved

Explanation

The board is responsible for setting overall risk appetite and overseeing management against it. Daily desk limits are a management task, full delegation removes oversight, and risk oversight is continuous rather than annual.

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