100% PASS 2025 8020: ORM CERTIFICATE - 2023 UPDATE–EFFICIENT BRAIN EXAM

100% Pass 2025 8020: ORM Certificate - 2023 Update–Efficient Brain Exam

100% Pass 2025 8020: ORM Certificate - 2023 Update–Efficient Brain Exam

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PRMIA ORM Certificate - 2023 Update Sample Questions (Q42-Q47):

NEW QUESTION # 42
Internal loss data (ILD) consists of what kind of data?

  • A. It consists of near miss operational loss incidents of a bank.
  • B. It consists of scenario data develeloped to calcuate the future operational loss incidents of a bank.
  • C. It consists of the Key Risk Indicators of a bank.
  • D. It consists of historical operational loss incidents of a bank.

Answer: D

Explanation:
Definition of Internal Loss Data (ILD)
Internal Loss Data (ILD) refers to historical records of actual operational losses incurred by a bank.
These losses are used for risk assessment, capital calculations, and trend analysis under Basel III's Operational Risk Framework.
Key Characteristics of ILD
Captures actual past loss events, such as fraud, system failures, and compliance breaches.
Supports the identification of risk trends and weak control areas.
Used for operational risk capital modeling, along with external loss data and scenario analysis.
Why Other Answers Are Incorrect
Option
Explanation:
A . It consists of near miss operational loss incidents of a bank.
Incorrect - ILD captures actual losses, while near misses are reported separately.
C . It consists of the Key Risk Indicators of a bank.
Incorrect - KRIs are forward-looking risk metrics, while ILD focuses on historical data.
D . It consists of scenario data developed to calculate the future operational loss incidents of a bank.
Incorrect - ILD is historical, whereas scenario data is used for predictive analysis.
PRMIA Reference for Verification
Basel III & PRMIA Operational Risk Data Framework
PRMIA Risk Management Standards for ILD


NEW QUESTION # 43
Which of the following are the most relevant ways a firm can ensure they are in line with consumer protection?

  • A. Add a consumer protection section to all reports.
  • B. This risk cannot be managed.
  • C. Treat customers fairly, place customer interests ahead of its own and keep promises to customers
  • D. Engage with consumers once there are enough complaints.

Answer: C

Explanation:
Definition of Consumer Protection in Risk Management
Consumer protection ensures ethical business practices, transparency, and regulatory compliance.
It builds trust with customers and reduces legal and reputational risks.
Key Principles of Consumer Protection
Treating customers fairly → Ensures honest and ethical financial services.
Prioritizing customer interests → Prevents conflicts of interest and unfair treatment.
Honoring commitments → Strengthens customer confidence and regulatory trust.
Why Answer C is Correct
Following these principles ensures regulatory compliance, customer satisfaction, and risk mitigation.
Why Other Answers Are Incorrect
Option
Explanation:
A . Engage with consumers once there are enough complaints.
Incorrect - Proactive engagement is essential; waiting for complaints is a reactive and poor risk management approach.
B . Add a consumer protection section to all reports.
Incorrect - Documentation alone does not ensure fair treatment; actions matter more.
D . This risk cannot be managed.
Incorrect - Consumer protection risks can and should be actively managed.
PRMIA Reference for Verification
PRMIA Consumer Protection & Fair Treatment Standards
Financial Conduct Authority (FCA) Consumer Duty Guidelines


NEW QUESTION # 44
For the Northern Rock case study, what was the low-probability-high-impact event that was most responsible for the loss event?

  • A. Liquidity dried up in the inter-bank and commercial paper markets.
  • B. The Bank of England's withdrawal of Deposit Protection.
  • C. An exposure to real estate funds, heavily concentrated in Berlin.
  • D. The acquisition of Merrill Lynch by copyright.

Answer: A

Explanation:
Step 1: Understanding the Northern Rock Case Study
Northern Rock was a UK bank that collapsed in 2007 due to its heavy reliance on short-term wholesale funding rather than customer deposits.
When the 2007 financial crisis hit, the inter-bank lending market and commercial paper market froze, cutting off Northern Rock's access to liquidity.
Step 2: Why Option C Is Correct
Northern Rock depended on short-term borrowing to fund long-term mortgage lending.
When the liquidity crisis hit, it couldn't refinance its debt, leading to a bank run and collapse.
The Bank of England had to intervene, and the UK government nationalized Northern Rock in 2008.
Step 3: Why the Other Options Are Incorrect
Option A ("Acquisition of Merrill Lynch") → Incorrect because this happened in 2008, after Northern Rock's failure.
Option B ("Withdrawal of Deposit Protection") → Incorrect because UK deposit protection remained in place.
Option D ("Real estate exposure in Berlin") → Incorrect because Northern Rock's problem was funding liquidity, not real estate losses.
PRMIA Risk Reference Used:
PRMIA Liquidity Risk Management Framework - Describes how liquidity shocks impact banks like Northern Rock.
Basel III Liquidity Coverage Ratio (LCR) Standards - Created after Northern Rock to prevent similar liquidity crises.
Final Conclusion:
The collapse of the inter-bank and commercial paper markets was the key low-probability-high-impact event that led to Northern Rock's failure, making Option C the correct answer.


NEW QUESTION # 45
The Internal Loss Multiplier (ILM) is part of the Basel III Standardized Approach. Which of these definitions best descibes it?

  • A. It is uniform, and is used for indicating consistent incidents on an average return basis.
  • B. It is a non-financial factor that is based on a bank's average historical losses.
  • C. t is a scaling factor that is based on a bank's average historical losses.
  • D. It is a financial-statement-based proxy for operational risk.

Answer: C

Explanation:
The Internal Loss Multiplier (ILM) is a key component of the Basel III Standardized Approach for Operational Risk. It is designed to adjust capital requirements based on a bank's historical loss experience.
Definition of ILM
ILM is a scaling factor that adjusts the operational risk capital requirement based on a bank's internal loss history.
It is derived using a formula that incorporates historical operational risk losses relative to a bank's revenue.
Why ILM Exists in Basel III
Basel III replaced the Advanced Measurement Approach (AMA) with a Standardized Approach that includes ILM to ensure that banks with high historical losses hold more capital for operational risk.
Why Other Answers Are Incorrect
Option
Explanation:
A . It is a financial-statement-based proxy for operational risk.
Incorrect - ILM is not a general financial statement proxy; it specifically adjusts capital based on past operational losses.
B . It is a non-financial factor that is based on a bank's average historical losses.
Incorrect - ILM is financial in nature because it directly influences capital requirements.
D . It is uniform, and is used for indicating consistent incidents on an average return basis.
Incorrect - ILM is not uniform; it is bank-specific and varies based on loss history.
PRMIA Reference for Verification
PRMIA Operational Risk Standards
Basel III Standardized Approach for Operational Risk


NEW QUESTION # 46
In Operational Resilience, which of the following is not an important measure of whether a Business Service can be considered Critical?

  • A. Whether a disruption to the provision of the service could harm market integrity.
  • B. Whether a disruption to the provision of the service could exceed risk appetite.
  • C. Whether a disruption to the provision of the service could threaten a firm's viability.
  • D. Whether a disruption to the provision of the service could cause material customer detriment.

Answer: B

Explanation:
Step 1: Definition of a Critical Business Service in Operational Resilience A Critical Business Service is one whose failure could result in severe harm to customers, financial markets, or the firm's viability.
Regulators (e.g., Bank of England, Basel Committee, PRMIA) define three primary factors for identifying critical services:
Customer impact
Market integrity impact
Firm viability impact
Step 2: Why Option C Is Incorrect
Risk appetite is an internal business decision, not an external measure of criticality.
A service can be critical even if its disruption stays within risk appetite.
Criticality is based on external impacts, not just internal risk limits.
Step 3: Why the Other Options Are Correct
Option A ("Material customer detriment") → Correct as customer harm defines critical services.
Option B ("Harm to market integrity") → Correct as market stability is a regulatory priority.
Option D ("Threaten firm viability") → Correct as critical services often determine business survival.
PRMIA Risk Reference Used:
PRMIA Operational Resilience Framework - Defines criteria for critical business services.
Basel Committee Operational Risk Guidelines - Highlights customer, market, and firm viability as resilience factors.
Final Conclusion:
Risk appetite is an internal benchmark, not a measure of critical service designation, making Option C the correct answer.


NEW QUESTION # 47
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