Financial Risk Manager Part 1
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A seasoned risk management professional working at an American financial institution is collaborating with the chief technology officer (CTO) to develop effective procedures for aggregating and reporting risk data in accordance with the Basel guidelines. The CTO wants to understand the potential hurdles they might face given the institution's current practices. Among the observations listed regarding the institution's current methods, which would pose the most significant challenge for the bank in meeting the Basel standards for aggregating and reporting risk data?
A seasoned risk management professional working at an American financial institution is collaborating with the chief technology officer (CTO) to develop effective procedures for aggregating and reporting risk data in accordance with the Basel guidelines. The CTO wants to understand the potential hurdles they might face given the institution's current practices. Among the observations listed regarding the institution's current methods, which would pose the most significant challenge for the bank in meeting the Basel standards for aggregating and reporting risk data?
Explanation:
C is correct. The exponential increase in the application of Al techniques on large data sets has made compliance with BCBS 239 (the principles for risk data aggregation) more challenging. Therefore, the bank's increasing use of artificial intelligence techniques will be a challenge to its implementation of the principles. A is incorrect. The ability to aggregate data at a firm-wide level rather than on a local team or business unit level is one of the goals of implementing strong risk data aggregation practices. B is incorrect. Risk reporting frequency is a function of the risk type and purpose of each risk report. During times of stress, report frequency may increase to keep pace with unusually fast-moving markets. D is incorrect. All risk types, including the Pillar 1 and Pillar 2 risks, should be included in the risk reports.