Pillar Risks

Question 1

Credit Risk is in which Pillar?

Answer 1

Pillar 1 Risk

Question 2

Market Risk is in which Pillar?

Answer 2

Pillar 1 Risk

includes interest rate risk

Question 3

Operational Risk is in which Pillar?

Answer 3

Pillar 1 Risk

Question 4

the risk of loss of principal or financial reward caused by the borrower’s failure to repay a loan or otherwise meet a financial obligation

falls under which risk?

Answer 4

Credit Risk

Question 5

the risk to value, earnings, or capital arising from movements of risk factors in financial markets

falls under which risk?

Answer 5

Market Risk

Question 6

includes interest rate risk (including real- and nominal interest rates, credit spreads and basis spreads), currency risk, equity risk (including dividend risk), and commodity risk (including precious metals) and risks from changes in volatilities or correlations.

falls under which risk?

Answer 6

Market Risk

Question 7

the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.

falls under which risk?

Answer 7

Operational Risk

Question 8

includes legal risk, but excludes strategic and reputational risk.

falls under which risk?

Answer 8

Operational Risk

Question 9

Credit Concentration Risk is in which Pillar?

Answer 9

Risks not Fully Covered in Pillar 1

Question 10

Residual Risk is in which Pillar?

Answer 10

Risks not Fully Covered in Pillar 1

Question 11

Securitization Risk is in which Pillar?

Answer 11

Risks not Fully Covered in Pillar 1

Question 12

should be analyzed at both a local legal entity level and a consolidated basis.

falls under which risk?

Answer 12

Credit Concentration Risk

Question 13

any single exposure or group of similar exposures (eg, to the same borrower or counterparty, geographic area, industry or other risk factors) with the potential to produce losses large enough (relative to a CIF’s earnings, capital, total assets or overall risk level) to threaten a CIF’s ability to maintain its core operations or a material change in a CIF’s risk profile.

falls under which risk?

Answer 13

Credit Concentration Risk

Question 14

occurs, for example, as a result of the low performance or failure of credit risk mitigation techniques such as ineffective documentation, or delay or inability to realise payment from a client in a timely manner.

falls under which risk?

Answer 14

Residual Risk

Question 15

a CIF should ensure that it fully understands the credit quality and risk characteristics of the underlying exposures in structured credit transactions, including any risk concentrations.

falls under which risk?

Answer 15

Securitization Risk

Question 16

Settlement Risk is in which Pillar?

Answer 16

Risks not Fully Covered in Pillar 1

Question 17

Foreign Exchange Risk is in which Pillar?

Answer 17

Risks not fully covered under Pillar 1

Question 18

is the risk that one party fails to deliver the asset or cash value at the time of settlement of a trade. This is of particular importance when transferring funds on behalf of clients.

falls under which Risk?

Answer 18

Settlement Risk

Question 19

Due to the high liquidity and volatility of the market, these losses can be significant and it is therefore essential for CIFs to identify, measure and manage this risk effectively.

falls under which Risk?

Answer 19

Foreign Exchange Risk

Question 20

Liquidity Risk is in which Pillar?

Answer 20

Pillar 2 Risks

Question 21

Business Risk is in which Pillar?

Answer 21

Pillar 2 Risks

Question 22

Legal and Compliance Risk is in which Pillar?

Answer 22

Pillar 2 Risks

Question 23

Reputational Risk is in which Pillar?

Answer 23

Pillar 2 Risks

Question 24

Strategic Risk is in which Pillar?

Answer 24

Pillar 2 Risks

Question 25

Group Risk is in which Pillar?

Answer 25

Pillar 2 Risks

Question 26

inability to manage unplanned decreases or changes in funding sources

falls under which risk?

Answer 26

Liquidity Risk

Question 27

failure to recognise or address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value.

falls under which risk?

Answer 27

Liquidity Risk

Question 28

CIFs are exposed to performance risk and need to assess how they will manage their relationships with clients during periods of poor performance.

falls under which risk?

Answer 28

Business Risk

Question 29

Performance risk may affect a CIF’s ability to generate income.

falls under which risk?

Answer 29

Business Risk

Question 30

may arise as a result of breaches or non-compliance with legislation, regulations, practices or ethical standards:

falls under which risk?

Answer 30

Legal and Compliance Risk

Question 31

investment advice – risk of breaching the customer’s obligations, for example, by providing unsuitable advice

falls under which risk?

Answer 31

Legal and Compliance Risk

Question 32

execution-only services – risk of not executing orders appropriately.

falls under which risk?

Answer 32

Legal and Compliance Risk

Question 33

may arise from providing poor customer service or from fines imposed by CySEC that create a negative feeling towards the CIF from the market.

falls under which risk?

Answer 33

Reputational Risk

Question 34

occurs as a result of adverse business decisions, improper implementation of decisions or lack of responsiveness to changes in the business environment.

falls under which risk?

Answer 34

Strategic Risk

Question 35

applies to all subsidiaries that are part of a group which is established either in the Republic, another member state, or a third country.

falls under which risk?

Answer 35

Group Risk

Question 36

a CIF that has a parent in a third country which does not apply Basel II rules and has exposure to high political risk, needs to assess the possibility of being indirectly adversely impacted from a political event in the set-up stage of the parent company.

falls under which risk?

Answer 36

Group Risk