Operational Risk Management Flashcards
7 cards from real CRA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Operational Risk Management flashcards as text
A CRA candidate is reviewing a Business Continuity Plan (BCP). Which element is MOST critical for ensuring the BCP is operationally effective?
Answer: Regular testing and exercises that simulate realistic disruption scenarios
Regular testing validates that BCP procedures actually work and that staff know their roles, revealing gaps that static documentation cannot identify.
Which operational risk measurement concept captures the maximum potential loss over a given time horizon at a specified confidence level?
Answer: Operational Value at Risk (OpVaR)
Operational Value at Risk (OpVaR) represents the maximum operational loss at a given confidence level (e.g., 99.9%) over a defined period, analogous to market VaR.
A firm discovers that a rogue trader has been hiding losses in a fictitious account for 18 months, resulting in a $200M loss. Which Basel II event category applies?
Answer: Internal Fraud
Unauthorized trading and concealment of losses by an employee constitutes Internal Fraud, which covers intentional misrepresentation or asset misappropriation by insiders.
What is the primary objective of operational risk 'heat mapping'?
Answer: To visually prioritize risks by plotting likelihood against impact severity
A risk heat map plots operational risks on a likelihood-versus-impact matrix to help management visually prioritize which risks require immediate attention.
Under the Federal Reserve's SR 11-7 guidance, model risk management requires that all models undergo which two core activities?
Answer: Validation by an independent party and effective ongoing model monitoring
SR 11-7 emphasizes independent validation to ensure models are conceptually sound and fit for purpose, plus ongoing monitoring to detect performance deterioration.
Which of the following is an example of a 'people risk' within the operational risk framework?
Answer: Key person dependency where critical knowledge resides with one employee
Key person dependency is a people risk because the sudden loss of one employee can disrupt critical operations due to concentrated knowledge or authority.
When constructing an internal loss data collection program, what minimum reporting threshold is commonly used by US financial institutions for capturing operational loss events?
Answer: $10,000
A $10,000 reporting threshold is widely adopted by US banks as it captures material loss events while avoiding the administrative burden of logging trivial incidents.