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CISI-Managing Operational Risk in Financial Institutions
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Question 1 of 10
1. Question
The exposure of a firm to operational risk may increase during times of significant change to its organisation, infrastructure and business operating environment (for example, following a corporate restructure or changes in regulatory requirements). Before, during, and after expected changes, a firm should assess and monitor their effect on its risk profile, including with regard to:
Correct
Untrained or de-motivated employees or a significant loss of employees during the period of change, or subsequently, inadequate human resources or inexperienced employees carrying out routine business activities owing to the prioritisation of resources to the programme or project, process or system instability and poor management information due to failures in integration or increased demand and inadequate or inappropriate processes following business reengineering.
Incorrect
Untrained or de-motivated employees or a significant loss of employees during the period of change, or subsequently, inadequate human resources or inexperienced employees carrying out routine business activities owing to the prioritisation of resources to the programme or project, process or system instability and poor management information due to failures in integration or increased demand and inadequate or inappropriate processes following business reengineering.
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Question 2 of 10
2. Question
A organization should think when considering the use of insurance:
Correct
The time taken for the insurer to pay claims (including the potential time taken in disputing cover) and the firm’s funding of operations whilst awaiting payment of claims, the financial strength of the insurer, which may determine its ability to pay claims, particularly where large or numerous small claims are made at the same time and the effect of any limiting conditions and exclusion clauses that may restrict cover to a small number of specific operational losses and may exclude larger or hard to quantify indirect losses.
Incorrect
The time taken for the insurer to pay claims (including the potential time taken in disputing cover) and the firm’s funding of operations whilst awaiting payment of claims, the financial strength of the insurer, which may determine its ability to pay claims, particularly where large or numerous small claims are made at the same time and the effect of any limiting conditions and exclusion clauses that may restrict cover to a small number of specific operational losses and may exclude larger or hard to quantify indirect losses.
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Question 3 of 10
3. Question
Which of the statement is incorrect about three lines of defence?
Correct
First line of defence is risk-owning and controlling functions, the second line of defence is functions that oversee or who specialise in compliance or the management of risk and the third line of defence includes functions that provide independent assurance.
Incorrect
First line of defence is risk-owning and controlling functions, the second line of defence is functions that oversee or who specialise in compliance or the management of risk and the third line of defence includes functions that provide independent assurance.
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Question 4 of 10
4. Question
Of course, operational management serves as which of the defense line provided, because controls are conceived into structures and processes under their operational management guidance?
Correct
Operational management naturally serves as the first line of defense because controls are designed into systems and processes under their guidance of operational management.
Incorrect
Operational management naturally serves as the first line of defense because controls are designed into systems and processes under their guidance of operational management.
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Question 5 of 10
5. Question
The basic functions may vary by organization and sector, but in this second line of defense the typical functions include:
Correct
A risk management feature (and/or committee) that promotes and tracks organizational management’s implementation of effective risk management activities, and assists risk owners in identifying target risk exposure and transmitting relevant risk-related information across the enterprise.
Incorrect
A risk management feature (and/or committee) that promotes and tracks organizational management’s implementation of effective risk management activities, and assists risk owners in identifying target risk exposure and transmitting relevant risk-related information across the enterprise.
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Question 6 of 10
6. Question
Internal auditors offer adequate guidance to the governing body and senior management based on the organisation’s highest degree of transparency and objectivity. This guarantee, which is reported to senior management and the governing body, typically covers the field of:
Correct
A broad variety of priorities, including organizational performance and effectiveness; asset protection; transparency and credibility of monitoring processes; and conformity with laws, rules, strategies, practices and contracts.
Incorrect
A broad variety of priorities, including organizational performance and effectiveness; asset protection; transparency and credibility of monitoring processes; and conformity with laws, rules, strategies, practices and contracts.
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Question 7 of 10
7. Question
Regardless of how the Three Lines of Defense model is applied, senior management and regulatory bodies will clearly convey objectives of exchanging knowledge and organizing activities among each of the groups that are responsible for managing the risks and controls of the company. Choose the suggested inappropriate procedure.
Correct
Risk and control processes should be structured in accordance with the Three Lines of Defense model. Each line of defense should be supported by appropriate policies and role definitions. There should be proper coordination among the separate lines of defense to foster efficiency and effectiveness. Risk and control functions operating at the different lines should appropriately share knowledge and information to assist all functions in better accomplishing their roles in an efficient manner. Lines of defense should not be combined or coordinated in a manner that compromises their effectiveness. In situations where functions at different lines are combined, the governing body should be advised of the structure and its impact. For organizations that have not established an internal audit activity, management and/or the governing body should be required to explain and disclose to their stakeholders that they have considered how adequate assurance on the effectiveness of the organization’s governance, risk management, and control structure will be obtained.
Incorrect
Risk and control processes should be structured in accordance with the Three Lines of Defense model. Each line of defense should be supported by appropriate policies and role definitions. There should be proper coordination among the separate lines of defense to foster efficiency and effectiveness. Risk and control functions operating at the different lines should appropriately share knowledge and information to assist all functions in better accomplishing their roles in an efficient manner. Lines of defense should not be combined or coordinated in a manner that compromises their effectiveness. In situations where functions at different lines are combined, the governing body should be advised of the structure and its impact. For organizations that have not established an internal audit activity, management and/or the governing body should be required to explain and disclose to their stakeholders that they have considered how adequate assurance on the effectiveness of the organization’s governance, risk management, and control structure will be obtained.
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Question 8 of 10
8. Question
Pin point the incorrect claim made in the following statements about the coordination of three lines of defence.
Correct
Risk management is typically the best when there are three distinct and clearly identified lines of protection. However, in exceptional situations, especially in small companies, those lines of protection may be merged.
Incorrect
Risk management is typically the best when there are three distinct and clearly identified lines of protection. However, in exceptional situations, especially in small companies, those lines of protection may be merged.
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Question 9 of 10
9. Question
The key benefits of implementing an effective model of lines of defence does not include:
Correct
Mismatched incentives for risk-takers in the first phase of defence–management could have concentrated primarily on and defined bonuses [or job progress] centered on the accomplishment of financial targets rather than control-oriented targets.
Incorrect
Mismatched incentives for risk-takers in the first phase of defence–management could have concentrated primarily on and defined bonuses [or job progress] centered on the accomplishment of financial targets rather than control-oriented targets.
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Question 10 of 10
10. Question
Exclude out the incorrect cons of implementation of the model of three lines of defence.
Correct
“Potential conflicts of interest or overlapping positions may be identified more quickly and resolved by removing or reducing those threats” is not an benefit.
Incorrect
“Potential conflicts of interest or overlapping positions may be identified more quickly and resolved by removing or reducing those threats” is not an benefit.