Answer-first summary for fast verification
Answer: Require an independent review of the bank's operational risk management framework.
The correct answer is C: Require an independent review of the bank's operational risk management framework. This is because the board of directors should ensure that the bank's framework undergoes an independent review by audit or other appropriately trained parties. This helps to maintain the integrity and effectiveness of the operational risk management processes. Option A is incorrect because outsourcing and other risk transfer tools should complement, not replace, internal operational risk controls. Outsourcing can introduce additional operational risks and should not absolve management of their responsibility to manage operational risk. Option B is incorrect as the standardized approach under Basel II does not necessitate the use of an internal model. The new Basel recommendations for the standardized approach have phased out the earlier Advanced Measurement Approaches, which allowed some large banks to develop internal models for regulatory capital determination. Option D is also incorrect because risk owners are those who are responsible for the consequences of the risks they generate or supervise, which typically refers to the business lines themselves. The risk management function should develop and maintain policies to manage operational risk, review the business lines' risk management activities, and challenge the business units' implementation of risk management controls. However, the risk management function is not the primary owner of the risk; they support the business lines in managing it effectively.
Author: LeetQuiz Editorial Team
Ultimate access to all questions.
Given the context of Basel II and Basel III regulations for operational risk governance, what specific actions should the manager propose for the bank to improve its operational risk management procedures? Additionally, how can the bank prepare to adopt the Basel II standardized approach for calculating its operational risk regulatory capital?
A
Use third-party outsourcing agreements to replace most internal controls performed by senior managers and business line managers.
B
Develop an internal approach to model the distribution of operational risk losses and use it to determine the bank's regulatory capital.
C
Require an independent review of the bank's operational risk management framework.
D
Designate the risk management function as the primary owner of risk exposures within each business line.
No comments yet.