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
What is 'conduct risk' in operational risk management?
Answer: The risk of losses from employee misconduct such as insider trading or mis-selling
Conduct risk relates to how a firm and its employees behave toward customers and markets, including mis-selling, market manipulation, and conflicts of interest.
Operational risk appetite is best described as:
Answer: The level and type of operational risk a firm is willing to accept in pursuit of its strategy
Risk appetite defines the acceptable boundaries of operational risk-taking aligned with the firm's strategic goals and stakeholder expectations.
Which of the following best describes a 'near-miss' in operational risk management?
Answer: An event that could have caused a loss but did not due to luck or effective controls
Near-misses are events where a potential operational loss was averted; capturing them provides valuable insight into control weaknesses without waiting for actual losses.
When a bank outsources payment processing to a third-party vendor, the operational risk:
Answer: Remains with the bank, which must manage vendor risk through oversight
Outsourcing transfers the activity but not the accountability; the bank retains responsibility and must perform ongoing third-party risk management.
The 'loss data collection' process in operational risk management refers to:
Answer: Systematically recording internal and external operational loss events for capital modeling
Loss data collection maintains a database of internal operational losses and supplements it with external consortium data to build the loss distribution for capital modeling.
What does 'operational resilience' mean for a financial institution?
Answer: The capacity to prevent, adapt to, and recover from operational disruptions to critical services
Operational resilience focuses on ensuring critical business services can withstand and recover from severe operational disruptions, protecting customers and financial stability.
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