Operational Risk Events & KRIs Flashcards
7 cards from real CRA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Operational Risk Events & KRIs flashcards as text
Under the Basel II framework, which event type would capture losses arising from a natural disaster that destroys a firm's trading floor?
Answer: Damage to Physical Assets
Natural disasters that destroy physical infrastructure are categorized under Damage to Physical Assets in the Basel II event taxonomy.
Which property makes a KRI 'predictive' rather than merely 'descriptive'?
Answer: It changes before the risk event occurs, providing advance warning
A predictive KRI changes in advance of a risk event, giving management time to take preventive action.
An operational risk manager wants to reduce 'model risk' associated with the AMA for regulatory capital. The best approach is to:
Answer: Conduct rigorous model validation and back-testing of the loss model
Model validation and back-testing assess whether the AMA model accurately reflects actual loss experience, directly reducing model risk.
A payments firm's KRI 'transaction error rate' exceeds its red threshold for two consecutive weeks. According to sound risk governance, the next required step is:
Answer: Escalate to senior management and initiate a root-cause investigation
A sustained red-threshold breach requires immediate escalation and root-cause analysis to identify and remediate the underlying control failure.
Which of the following is a 'people risk' sub-category of operational risk?
Answer: Key person dependency and inadequate succession planning
Key person dependency is a people risk because the organization's continuity depends on specific individuals without adequate succession plans.
The 'gross loss' in operational risk refers to:
Answer: Total loss before any recoveries, insurance proceeds, or mitigants
Gross loss captures the full magnitude of a loss event before any recoveries, providing the unmitigated impact for risk measurement purposes.
A bank discovers that its anti-money laundering (AML) controls failed to flag a series of suspicious transactions. Under Basel II event categories, this is best classified as:
Answer: Clients, Products & Business Practices
AML control failures that enable illicit financial activity represent a failure in regulatory compliance and client due diligence, falling under Clients, Products & Business Practices.