medium · FRM Part 2 Operational Risk
An operational risk report shows that a business unit's Key Risk Indicator (KRI) for 'overdue trade confirmations' has been red for five months, yet the Risk and Control Self-Assessment (RCSA) for the same process reports a 'Green' residual risk.
What is the most likely structural failure in this framework?
- The bank is using the Standardized Measurement Approach (SMA), which makes these individual unit metrics irrelevant.
- The RCSA process is suffering from self-assessment bias or 'gaming' by the business unit.
- Internal Audit has not yet performed their annual review, which is the only way to reconcile these metrics.
- The KRI is poorly designed and should be ignored if the RCSA is green.
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