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
According to Basel III, operational risk is defined as the risk of loss resulting from:
Answer: Inadequate or failed internal processes, people, systems, or external events
Basel defines operational risk as losses from failed or inadequate internal processes, people, and systems, or from external events such as fraud or natural disasters.
Which of the following is an example of an internal fraud operational risk event?
Answer: A rogue trader exceeding authorized position limits to conceal losses
Rogue trading involves unauthorized positions taken by an internal employee, making it an internal fraud event under Basel's operational risk taxonomy.
The 'Standardized Approach' (SA) for operational risk capital under Basel III calculates capital based on:
Answer: Business Indicator components and an Internal Loss Multiplier
The Basel III Standardized Approach uses a Business Indicator (BI) and, for large banks, an Internal Loss Multiplier based on historical losses.
A Key Risk Indicator (KRI) in operational risk management is best described as:
Answer: A metric that provides early warning signals of increasing operational risk exposure
KRIs are forward-looking metrics (e.g., staff turnover rate, system error rates) that signal rising operational risk before losses occur.
What is a Risk and Control Self-Assessment (RCSA)?
Answer: A structured process in which business units identify, assess, and rate their own operational risks and controls
RCSA engages frontline business units in identifying inherent risks, evaluating control effectiveness, and rating residual risk.
What does 'business continuity planning' (BCP) address in operational risk management?
Answer: Ensuring critical operations can continue or quickly recover after a disruptive event
BCP identifies critical functions and establishes procedures to maintain or restore them after events like system failures, pandemics, or natural disasters.
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