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Answer: The bank considers independent review and audit of the risk processes and systems as the third line of defense.
The correct answer is B. Sound operational risk governance, according to Basel, relies on three lines of defense: (i) First line of defense - business line management, which is responsible for identifying and managing the risks inherent in the products, activities, processes and systems for which it is accountable; (ii) Second line of defense -- an independent corporate operational risk management function, generally complementing the business lines' operational risk management activities; (iii) Third line of defense - an independent review and audit of the bank's operational risk management controls, processes and systems. The bank's framework for managing operational risk should include an independent review and audit as the third line of defense, which aligns with the principles outlined in the Basel II and Basel III guidelines.
Author: LeetQuiz Editorial Team
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Which actions and principles are consistent with the bank's framework for managing operational risk, in line with the standards set by Basel II and Basel III guidelines for operational risk governance?
A
The bank considers identification and management of risk as the second line of defense.
B
The bank considers independent review and audit of the risk processes and systems as the third line of defense.
C
The bank includes damaged reputation due to a failed merger in its measurement of operational risk.
D
The bank excludes destruction by fire or other external catastrophes from its measurement of operational risk.
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