5. Risk Management

Question 1

Define risk management.

Answer 1

The sum of activities taken to deal with risks that could occur.

Question 2

What are the four stages of the risk management lifecycle?

Answer 2

Identification

Assessment

Mitigation

Monitoring

Question 3

Name five ways of identifying risks.

Answer 3

Workshops

Questionnaires

Loss data analysis

Near miss analysis

PESTEL

Question 4

What is PESTEL analysis?

Answer 4

Political

Economic

Social

Technological

Environmental

Legal

Question 5

Define risk.

Answer 5

The possibility of loss, injury, disadvantage or destruction.

Question 6

Name four sources of economic risk

Answer 6

Trade cycle

Interest rates

Unemployment

Composition of economy by sector

Question 7

Name three potential sources of social risk.

Answer 7

Demographics

Lifestyle changes

Levels of education

Question 8

Name two sources of technological risk.

Answer 8

New technology

Obsolescence of existing technology

Question 9

What are the nine steps of risk assessment?

Answer 9

1) identify
2) categorise
3) initial analysis
4) plot impact vs probability
5) prioritise and allocate to owners
6) deeper analysis
7) risk register
8) develop mitigants
9) review regularly

Question 10

High probability, high impact risk

Answer 10

Avoid

Question 11

Low impact, high probability

Answer 11

Control

Question 12

High impact, low probability

Answer 12

Transfer

Question 13

Low probability, low impact

Answer 13

Accept

Question 14

Name six strategies for mitigating risk.

Answer 14

1) avoid
2) share
3) transfer
4) reduce
5) accept
6) retain (may be unintentional)

Question 15

Two categories of risk avoidance?

Answer 15

1) proactive

2) retrospective (abandonment)

Question 16

Two examples of risk sharing?

Answer 16

1) joint venture/syndicate

2) outsourcing

Question 17

Two examples of risk transfer?

Answer 17

1) insurance

2) securitisation

Question 18

What is a risk indicator?

Answer 18

Early warning sign that risk exposure is changing

Question 19

What is a KEY risk indicator?

Answer 19

Tracks KEY risk

OR

Tracks it very well (KEY indicator)

Question 20

What key info is included on a risk register?

Answer 20

1) project name
2) identified risks
3) owners
4) probability
5) severity
6) mitigants and their effectiveness

Question 21

What is credit risk?

Answer 21

Risk that money lent out will not be repaid in full or in part.

Question 22

What is regulatory risk?

Answer 22

Risk of material loss, reputational damage or liability (fines) from failing to comply with regulation.

Question 23

What is operational risk?

Answer 23

Risk of direct or indirect loss resulting from inadequate or failed processes, people and systems or from external events.

Question 24

What are four categories of operational risk?

Answer 24

Process

People

Systems

External

Question 25

How does the regulator approach risk management?

Answer 25

Combination of:

1) probability of impact
2) severity of impact

Question 26

What are the three pillars of the FCA approach to supervision?

Answer 26

1) Firm Systematic Framework (FSF)
2) Event-driven work
3) Issues and products

Question 27

What is the question at the heart of the Firm Systematic Framework (FSF)?

Answer 27

Are the interests of customers and market integrity at the heart of how the firm is run?

Question 28

What is BMSA as part of the FSF?

Answer 28

Business Model and Strategy Analysis

Is conduct sustainable?

Any emerging risks?

Question 29

What are the four modules of assessment under the FSF?

Answer 29

Governance and culture

Product design

Sales or transaction processes

Post-sales handling

Question 30

What are the key aspects of Sector Risk Assessments (SRA) under the FCA’s approach?

Answer 30

What issues are behind poor customer outcomes?

How much harm is caused?

What can be done?