easy · FRM Part 1 Foundations of Risk Management
A Chief Risk Officer (CRO) reports to the Chief Executive Officer (CEO), who is compensated based on the firm's return on equity.
According to best practices in risk governance, why is this reporting line a structural weakness?
- It prevents the Board of Directors from seeing the risk appetite statement.
- It compromises the independence of the second line of defense.
- It violates the principle of the third line of defense.
- It causes a mandatory breach of the firm's risk capacity.
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