FRM Operational Risk Flashcards
6 cards from real FRM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 FRM Operational Risk flashcards as text
What is the 'four-eyes principle' in operational risk controls?
Answer: Requiring two people to authorize significant transactions or decisions to prevent fraud and errors
The four-eyes principle is a segregation of duties control requiring a second authorized person to approve important actions, reducing the risk of unauthorized activity.
In operational risk loss data, what are 'near misses'?
Answer: Events that could have caused losses but were caught before any financial impact occurred
Near misses are operational risk events that were averted or caught before causing financial loss; they provide valuable data about control weaknesses.
Which of the following is an example of 'execution, delivery, and process management' as an operational risk event type under Basel?
Answer: A settlement error resulting from incorrect trade data entry
Execution, delivery, and process management covers unintentional failures in transaction processing, settlement errors, and data entry mistakes.
What does 'Business Continuity Planning' (BCP) protect against in operational risk management?
Answer: Disruption to critical business functions from disasters, system failures, or other major operational events
BCP ensures that critical operations can continue or be quickly restored following a disruptive event such as a natural disaster, power failure, or pandemic.
What is 'model risk' in the context of operational risk?
Answer: The risk of loss from decisions based on incorrect or misused financial models
Model risk arises when models have errors, are misapplied, or their assumptions break down, leading to incorrect valuations or decisions that cause financial loss.
Under the Basel III Standardized Measurement Approach (SMA) for operational risk, the capital charge is based on:
Answer: A combination of a business indicator component and an internal loss multiplier
SMA combines a Business Indicator Component (based on income and activity measures) with an Internal Loss Multiplier that adjusts for a bank's own loss history.