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PRMIA ORM Certificate - 2023 Update Sample Questions (Q10-Q15):
NEW QUESTION # 10
Which of the following principles best applies to a compliance function?
- A. The compliance function should report to the business (even when following a three lines of defense model).
- B. The compliance function should be outsourced if there is a risk function.
- C. The compliance function should be independent of the business (following a three lines of defense model).
- D. The risk function should be outsourced if there is a compliance function.
Answer: C
Explanation:
Step 1: Compliance Function and the Three Lines of Defense Model
The Three Lines of Defense (3LoD) model ensures that risk management responsibilities are properly segregated:
First Line: Business units (own and manage risk).
Second Line: Compliance and risk management (independent oversight).
Third Line: Internal audit (provides assurance).
Step 2: Why Compliance Must Be Independent
PRMIA and Basel Compliance Principles state that compliance should not report to business units, as this creates a conflict of interest.
Compliance must be independent to ensure objective oversight of regulatory adherence.
Step 3: Why the Other Options Are Incorrect
Option A ("Report to the business") → Incorrect because compliance must provide independent oversight, not report to business units.
Option C ("Outsource compliance if risk function exists") → Incorrect because compliance and risk functions have distinct roles.
Option D ("Outsource risk if compliance exists") → Incorrect because risk management is a core function, not an outsourcing candidate.
PRMIA Risk Reference Used:
PRMIA Compliance Risk Governance - States compliance must be independent under the Three Lines of Defense model.
Basel Compliance Principles - Recommends separate reporting structures for compliance and business units.
Final Conclusion:
Compliance must be independent from the business to avoid conflicts of interest, making Option B the correct answer.
NEW QUESTION # 11
Process mapping is:
- A. A useful tool for understanding process intensive activities.
- B. All of the above.
- C. A helpful tool for understanding where control gaps may exist.
- D. A good visualization tool for understanding where hand-offs and hand-ins may occur.
Answer: B
Explanation:
Process Mapping is a risk management tool used to visualize workflows, identify inefficiencies, and detect control gaps. PRMIA defines process mapping as an essential operational risk management tool.
Step 1: Understanding Process Mapping
Helps analyze complex, process-intensive activities (Option A).
Reveals control weaknesses that could lead to operational risks (Option B).
Improves hand-offs and collaboration between teams (Option C).
Step 2: Why "All of the Above" is Correct
Process mapping serves multiple risk management purposes, making all listed options valid.
PRMIA Risk Reference Used:
PRMIA Operational Risk Management Guidelines - Recommends process mapping to identify inefficiencies and control gaps.
PRMIA Risk Governance Framework - Encourages visualization tools for process improvement.
Final Conclusion:
Process mapping improves risk awareness, identifies control gaps, and enhances operational workflows, making Option D the correct answer.
NEW QUESTION # 12
In operational resilience, what is impact tolerance?
- A. Impact tolerance is a firm's tolerance for disruption to a particular business service.
- B. Impact tolerance is a firm's risk capacity statement.
- C. Impact tolerance is a firm's tolerance for disruption to a particular business process.
- D. Impact tolerance is a firm's risk appetite statement.
Answer: A
Explanation:
Impact Tolerance is a key concept in Operational Resilience, defined as the ability of a firm to withstand, respond to, and recover from disruptions. According to PRMIA and global regulatory frameworks (such as the Bank of England's Operational Resilience Framework), impact tolerance is specifically tied to business services rather than processes.
Step 1: Defining Impact Tolerance
Impact tolerance is the maximum acceptable level of disruption to an important business service, beyond which there would be intolerable harm to customers, financial markets, or regulatory obligations.
It is not the same as risk appetite or risk capacity, as those deal with broader organizational risk exposure.
Step 2: Why Business Services Matter
PRMIA defines business services as end-to-end services delivered to clients and stakeholders, such as payments processing, trade execution, or loan approvals.
Disruptions to these services directly impact customers and financial stability, making business service resilience the core focus of impact tolerance.
Step 3: Why the Other Options Are Incorrect
Option A ("tolerance for disruption to a particular business process")
Incorrect because impact tolerance applies to services, not just internal processes.
Option C ("a firm's risk appetite statement")
Incorrect because risk appetite focuses on how much risk a firm is willing to take, while impact tolerance is about surviving disruptions.
Option D ("a firm's risk capacity statement")
Incorrect because risk capacity is the maximum level of risk a firm can bear, which is broader than business service disruptions.
PRMIA Risk Reference Used:
PRMIA Operational Resilience Guidelines - Defines impact tolerance as a service-based metric.
Bank of England's Operational Resilience Framework - Establishes impact tolerance as a limit on business service disruption.
Final Conclusion:
Impact tolerance focuses on business services, not just internal processes or risk appetite, making Option B the correct answer.
NEW QUESTION # 13
Which of the following is not the purpose or benefit of a Risk Appetite statement?
- A. Establishes the maximum risk that the organization can stand.
- B. The governing body articulates its expectations.
- C. Assists with Strategic discussions.
- D. Risk management standards and resources are likely to be improved.
Answer: A
Explanation:
Step 1: Understanding a Risk Appetite Statement
Risk Appetite is the amount of risk an organization is willing to take to achieve its objectives.
A Risk Appetite Statement (RAS) communicates risk tolerance levels and management expectations.
Step 2: Why Option C is Incorrect
Risk Capacity (not Risk Appetite) defines the maximum risk the firm can withstand.
Risk Appetite is about willingness to take risk, not the absolute limit.
Step 3: Why the Other Options Are Correct
Option A ("Improves risk management standards") → Correct, as RAS helps define better risk management.
Option B ("Governing body articulates expectations") → Correct, as RAS is approved by the board.
Option D ("Assists strategic discussions") → Correct, as RAS guides decision-making.
PRMIA Risk Reference Used:
PRMIA Risk Appetite Framework - Differentiates between Risk Appetite and Risk Capacity.
Basel III Governance Principles - Encourages organizations to establish clear risk appetite statements.
Final Conclusion:
Risk Appetite does not establish the maximum risk the firm can withstand-that is Risk Capacity, making Option C the correct answer.
NEW QUESTION # 14
What are the objectives of conducting an internal loss investigation?
- A. Increase understanding of root causes, focus attention on remediation, and ascertain responsibility for the loss event.
- B. This is determined on a case by case basis by the HR team.
- C. Increase understanding of root causes, focus attention on remediation, and improve the quality of scenario analysis and risk assessments.
- D. Increase understanding of root causes, focus attention on who caused the issue, and improve the quality of scenario analysis and risk assessments.
Answer: C
Explanation:
tep 1: Purpose of Internal Loss Investigations
Internal loss investigations analyze past loss events to identify root causes, improve controls, and enhance risk assessments.
Step 2: Why Option A Is Correct
Root Cause Analysis: Identifying why the loss occurred.
Focus on Remediation: Implementing corrective measures to prevent recurrence.
Scenario Analysis Improvement: Using lessons learned to enhance risk scenario modeling.
Step 3: Why the Other Options Are Incorrect
Option B ("Focus on who caused the issue") → Incorrect because loss investigations are about systemic issues, not assigning blame.
Option C ("Ascertain responsibility for the loss event") → Incorrect because the focus is on process improvements, not individual accountability.
Option D ("Determined by HR on a case-by-case basis") → Incorrect because HR does not dictate risk investigations-risk and compliance functions do.
PRMIA Risk Reference Used:
PRMIA Operational Risk Framework - Emphasizes loss investigations for systemic risk management.
Basel III Risk Governance Standards - Defines loss event analysis as a key risk management tool.
NEW QUESTION # 15
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