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During a meeting with a risk consultant to improve the risk culture framework for a leading financial institution, which example should the consultant give to effectively demonstrate the elements of a strong risk culture?
Explanation:
B is correct. One of the good indicators is risk information flow. The weekly whole-company meeting allows the firm to see information flowing up and across the firm in a way that captures and highlights enterprise-scale risks. A is incorrect. A compensation plan that is developed based on another company's business structures (especially a company that is at a different stage of its development) will not be a good indicator of healthy risk culture. One good indicator is compensation and performance metrics that are supportive of the firm's risk appetite and desired culture. C is incorrect. Good indicators are the existence of a whistle-blowing mechanism that allows for escalation of suspected enterprise risks and that staff know how and when to escalate a suspected enterprise risk. D is incorrect. This is incorrect as it would likely lead to too much risk being accepted at the firm. An example of a strong risk culture is that actions are taken against risk offenders; for example, if the firm penalizes the offender even if a risk violation leads to a profit rather than a loss.