Eliminate Risk of Failure with PRMIA 8020 Exam Dumps

Step 1: What Is the Turnbull Report?

The Turnbull Report (1999) was a UK corporate governance report that set risk management expectations for boards.

It required companies to assess and manage risks effectively as part of corporate governance.

Step 2: Why Option C is Correct

Turnbull was the first report to mandate that boards must consider risk management in corporate governance.

This report established risk assessment as a board-level responsibility.

Step 3: Why the Other Options Are Incorrect

Option A ('Defined risk governance for insurance') Incorrect because Turnbull applied to all sectors, not just insurance.

Option B ('First report to propose board structure') Incorrect because corporate boards existed long before Turnbull.

Option D ('Led to the US Federal Reserve') Incorrect because the Federal Reserve was established in 1913, long before Turnbull.

PRMIA Risk Reference Used:

PRMIA Corporate Governance Guidelines -- Highlights Turnbull's role in board-level risk oversight.

UK Corporate Governance Code -- Turnbull contributed to defining board risk responsibilities.

Final Conclusion:

The Turnbull Report was the first to require boards to consider risks in corporate governance, making Option C the correct answer.

Step 1: Definition of Material Customer Detriment

Material customer detriment refers to service disruptions that cause financial loss, inability to access essential services, or significant hardship.

PRMIA and UK FCA Operational Resilience Standards define 'significant harm' as going beyond inconvenience to include monetary or operational distress.

Step 2: Why Option D is Correct

Significant harm occurs when customers face tangible financial or service losses, not just reputational inconvenience.

Regulatory frameworks (e.g., Basel, FCA, PRMIA) require banks to protect customers from material disruptions.

Step 3: Why the Other Options Are Incorrect

Option A ('Low threshold, any complaint') Incorrect because not all complaints indicate material detriment.

Option B ('Inconvenience and reputational damage') Incorrect because true material harm is more than just inconvenience.

Option C ('Financial system resilience') Incorrect because this describes systemic financial stability, not customer impact.

PRMIA Risk Reference Used:

PRMIA Operational Resilience Framework -- Defines material customer detriment.

UK FCA Operational Resilience Guidelines -- Requires firms to minimize severe harm to customers.

Final Conclusion:

Material customer detriment involves actual financial hardship, not just inconvenience, making Option D the correct answer.

Step 1: Understanding Linked Losses in Operational Risk

In operational risk events, a single event can impact multiple business lines or event types (e.g., IT failure affecting retail banking and wealth management).

Proper loss attribution is important for accurate risk reporting and regulatory compliance under Basel III.

Step 2: Why Option C is Correct

Basel III and PRMIA guidance allow institutions flexibility in how to allocate linked losses:

Entire loss can be allocated to the business line with the largest loss impact for simplified reporting.

Loss can be pro-rated across affected business lines for more accurate attribution.

Step 3: Why the Other Options Are Incorrect

Option A ('Allocate entire loss to the business line with the greatest loss') Partially correct, but not always required---some firms prefer pro-rating.

Option B ('Pro-rate the loss') Partially correct, but allocating to the largest impacted business line is also acceptable.

Option D ('Each business line decides how to treat losses') Incorrect because loss allocation should follow a defined policy, not business line discretion.

PRMIA Risk Reference Used:

Basel III Operational Risk Framework -- Discusses loss attribution for multi-line impact events.

PRMIA Loss Event Management Guidelines -- Supports both full allocation and pro-rating.

Final Conclusion:

Firms can either allocate the full loss to the most impacted business line or pro-rate it across affected lines, making Option C the correct answer.

Introduction of Operational Risk in Basel Accords

Basel I (1988) Focused only on credit risk and market risk; operational risk was not yet included.

Basel II (2004) Introduced operational risk as a separate category, subject to capital requirements.

Basel III (2010) Strengthened capital and liquidity requirements but did not introduce operational risk.

Basel IV (2017, still evolving) Adjusts Basel III reforms but does not introduce operational risk as a new category.

Why Answer B is Correct

Basel II (2004) was the first to introduce operational risk as a risk requiring a capital charge.

Why Other Answers Are Incorrect

Option

Explanation

A . Basel I

Incorrect -- Basel I focused on credit risk and market risk, with no capital requirements for operational risk.

C . Basel III

Incorrect -- Basel III strengthened Basel II but did not introduce operational risk.

D . Basel IV

Incorrect -- Basel IV refines Basel III but does not introduce operational risk as a new capital charge.

PRMIA Reference for Verification

Basel II (2004) Operational Risk Framework

PRMIA Operational Risk Management Guidelines

Role of the Risk Function

The risk function is responsible for documenting, monitoring, and overseeing risk policies and frameworks.

It ensures the organization maintains structured risk governance, reporting, and compliance.

Key Responsibilities

Developing Risk Management Manuals to define risk appetite, risk frameworks, and risk governance structures.

Creating Risk Policies that align with regulatory standards and internal controls.

Why Answer B is Correct

The risk function primarily develops, implements, and maintains risk management frameworks, which include formal manuals and policies.

Why Other Answers Are Incorrect

Option

Explanation

A . Documenting its activities, typically by operating and then recording the daily operation of controls.

Incorrect -- The first line of defense (business units) handles daily operational controls, not the risk function.

C . Putting in place the servers, firewalls, and software to ensure cybersecurity.

Incorrect -- Cybersecurity is an IT responsibility, while the risk function oversees cyber risk frameworks.

D . Creating a trial balance, balance sheet statement, and cash flow statement.

Incorrect -- These are financial accounting responsibilities, not risk management duties.

PRMIA Reference for Verification

PRMIA Governance Framework for Risk Management

Basel Risk Management Principles