Operational Risk Management Flashcards
6 cards from real Financial Risk Management practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Operational Risk Management flashcards as text
The 'three lines of defense' model in operational risk management assigns risk management roles as:
Answer: Business units, risk and compliance functions, and internal audit
The first line (business units) owns risk, the second line (risk/compliance) oversees it, and the third line (internal audit) independently assesses both.
Which operational risk event type would a data breach involving customer information fall under?
Answer: External fraud
A data breach resulting from an external cyberattack is classified as external fraud under Basel's seven operational risk event categories.
Scenario analysis in operational risk is primarily used to:
Answer: Replace internal loss data when historical losses are insufficient for tail estimation
Scenario analysis captures low-frequency, high-severity tail risks where limited internal loss data exists, supplementing historical loss databases.
What is 'model risk' in the context of operational risk?
Answer: The risk of adverse consequences from decisions based on flawed or misused models
Model risk arises when a model has errors, is used outside its intended scope, or produces outputs that are misinterpreted, leading to poor decisions.
An operational risk loss that has a very low probability but extremely large magnitude is called:
Answer: A low-frequency, high-severity (LFHS) event
LFHS events, such as major fraud or catastrophic IT failures, are rare but can cause disproportionately large losses requiring capital buffer.
Cyber risk is most commonly managed under which risk category in enterprise risk frameworks?
Answer: Operational risk, as it stems from failed systems and external events
Cyber risk is classified as operational risk because it arises from technology system failures and malicious external events.
How this page was made: written with AI tools and published by Nathan Beja, founder of Practice Test Geeks, who is responsible for its content. Exam facts are checked against the official sources listed below. Not reviewed by a subject-matter expert. Editorial policy
Sources & references
Exam facts on this page (fees, format, dates, passing scores) are checked against these official sources; the date is our last check. Editorial policy
- garp.org — Registration, renewal, score validity, eligibility, score release, test delivery, exam format, passing score, time limit, exam information · verified Nov 2026