RIMS Regulatory Compliance & Ethical Standards 3 — Questions and Answers
Question 1: The Dodd-Frank Wall Street Reform and Consumer Protection Act created which entity to oversee systemic risk in the financial sector?
- Financial Industry Regulatory Authority (FINRA)
- Financial Stability Oversight Council (FSOC) (Correct answer)
- Consumer Financial Protection Bureau (CFPB)
- Office of Financial Research (OFR)
Correct answer: Financial Stability Oversight Council (FSOC)
The Financial Stability Oversight Council (FSOC) was created by Dodd-Frank to identify and respond to systemic risks to U.S. financial stability.
Question 2: In insurance regulation, the McCarran-Ferguson Act grants primary regulatory authority over insurance to:
- The federal government through the SEC
- Individual state governments (Correct answer)
- The National Association of Insurance Commissioners (NAIC)
- The U.S. Department of Treasury
Correct answer: Individual state governments
The McCarran-Ferguson Act of 1945 affirms that regulating the insurance industry is the responsibility of individual states.
Question 3: Which RIMS ethical principle requires risk management professionals to maintain and improve their knowledge and skills?
- Integrity
- Competence (Correct answer)
- Confidentiality
- Loyalty
Correct answer: Competence
The competence principle requires risk professionals to continuously develop their expertise to serve their organizations effectively.
Question 4: An organization's enterprise risk management (ERM) program must comply with Sarbanes-Oxley primarily because SOX requires:
- All companies to purchase enterprise risk insurance
- Public companies to disclose material risks and maintain effective internal controls (Correct answer)
- Risk managers to be licensed by a federal agency
- ERM frameworks to be approved by external auditors annually
Correct answer: Public companies to disclose material risks and maintain effective internal controls
SOX requires public companies to disclose material risks in their annual reports and maintain adequate internal controls over financial reporting.
Question 5: A risk manager working with an insurance broker discovers the broker receives undisclosed compensation from an insurer. This BEST represents a violation of:
- Antitrust regulations
- Fiduciary duty and disclosure requirements (Correct answer)
- Workers' compensation statutes
- Reinsurance treaty obligations
Correct answer: Fiduciary duty and disclosure requirements
Undisclosed broker compensation violates fiduciary duty and transparency requirements, as brokers must disclose all compensation arrangements to their clients.
Question 6: Under OSHA regulations, employers are required to report work-related fatalities to OSHA within:
- 24 hours
- 8 hours (Correct answer)
- 72 hours
- 5 business days
Correct answer: 8 hours
OSHA requires employers to report any work-related fatality within 8 hours of learning about it.
Question 7: The ethical concept of 'due diligence' in risk management requires professionals to:
- Ensure all risks are eliminated before proceeding with any project
- Exercise reasonable care and thoroughness in assessing risks and making decisions (Correct answer)
- Delegate all risk decisions to legal counsel
- Follow the same risk protocols regardless of the specific situation
Correct answer: Exercise reasonable care and thoroughness in assessing risks and making decisions
Due diligence requires risk managers to apply appropriate thoroughness and care when investigating, assessing, and making recommendations about risks.
RIMS Regulatory Compliance & Ethical Standards 3
The Dodd-Frank Wall Street Reform and Consumer Protection Act created which entity to oversee systemic risk in the financial sector?