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Operational Risk Management
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Operational Risk Management
Operational Risk Management
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1
Question
What is the Basel definition of operational risk?
Answer
Risk of loss from failed processes, systems, people, or external events.
2
Question
What are the four key causes of operational risk?
Answer
People, Processes, Systems, External Events.
3
Question
Name some main categories of operational risk.
Answer
Internal fraud, external fraud, employment practices, among others.
4
Question
What does regulatory compliance mean in the context of operational risk?
Answer
Following laws, rules, and regulations to avoid penalties.
5
Question
What disciplinary actions can regulators take against institutions failing in compliance?
Answer
Fines, license revocation, public censure, and business restrictions.
6
Question
What are the benefits of effective governance in operational risk management?
Answer
Oversight, regulatory compliance, and establishing accountability.
7
Question
What issues impact risk culture within an organization?
Answer
Tone from the top, incentives, and lack of training.
8
Question
Who ensures a strong risk culture in an organization?
Answer
Senior management and the board.
9
Question
What is meant by the 'first line of defence' in risk management?
Answer
Business units managing their own risks daily.
10
Question
What does ERM stand for and what is its view?
Answer
Enterprise Risk Management; it provides an enterprise-wide view of risk.
11
Question
What are the key aims of operational risk management (ORM)?
Answer
To identify, assess, mitigate, and monitor operational risks.
12
Question
Why is it important to link business objectives to risk appetite?
Answer
To align risk tolerance with growth, stability, and profitability goals.
13
Question
What are key methods used in risk identification?
Answer
Risk and Control Self-Assessment (RCSA), Key Risk Indicators (KRIs), and incident reporting.
14
Question
Why is governance infrastructure important in risk management?
Answer
It promotes clear policies, accountability, and leadership support.
15
Question
Name three common limitations in risk frameworks.
Answer
Resource constraints, poor data quality, and resistance to change.
16
Question
What is the key feature of Risk and Control Self-Assessment (RCSA)?
Answer
Self-assessment of risks by business units.
17
Question
What are the four techniques to treat operational risk?
Answer
Avoid, reduce, transfer, and accept.
18
Question
Why should risks be escalated promptly?
Answer
To ensure timely management response and prevent larger losses.
19
Question
List three benefits of using Key Risk Indicators (KRIs).
Answer
Early warning, exposure measurement, and support for root cause analysis.
20
Question
What are the three criteria for effective KRIs?
Answer
Measurable, predictive, and relevant.
21
Question
What are the stages of root cause analysis?
Answer
Identify the problem, collect data, analyze causes, and develop solutions.
22
Question
Why is analyzing internal controls important?
Answer
To find weaknesses and prevent recurrence of operational risk events.
23
Question
What is the role of the PRA in operational risk regulation?
Answer
To ensure the safety and soundness of financial institutions through prudential regulation.
24
Question
What are the FCA's three main operational risk objectives?
Answer
Protect consumers, maintain market integrity, and promote competition.
25
Question
What is the purpose of stress testing in operational risk management?
Answer
To assess resilience to adverse economic conditions.
26
Question
What is the role of the Financial Action Task Force (FATF)?
Answer
To set global standards to combat money laundering and terrorist financing.
27
Question
Why is training important in supporting ORM in the workplace?
Answer
It enhances risk awareness, supports control implementation, and ensures compliance.
28
Question
Why does personal responsibility matter in operational risk management?
Answer
Because employees actively identify and manage risks, embodying the principle of 'own the risk'.
29
Question
What is the key legislation for whistleblowing protection?
Answer
The Public Interest Disclosure Act 1998 (PIDA).
30
Question
What are four responsibilities of business lines in operational risk management?
Answer
Identify risks, implement controls, escalate issues, and monitor compliance.