Free PDF Quiz 2025 PRMIA Accurate 8020: Valid ORM Certificate - 2023 Update Exam Online
Free PDF Quiz 2025 PRMIA Accurate 8020: Valid ORM Certificate - 2023 Update Exam Online
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PRMIA ORM Certificate - 2023 Update Sample Questions (Q18-Q23):
NEW QUESTION # 18
In operational resilience, material customer detriment or significant harm to the customer is which of the following?
- A. This is the ability of a financial system to continue to function, even in the face of significant disruption or financial shocks.
- B. This is when disruption to a service results in an inconvenience to a customer and damage to the firm's reputation.
- C. This has a low threshold and refers to any inconvenience to a customer that results in a complaint.
- D. This is when disruption to a service results in not just an inconvenience to a customer, but a material cost or hardship.
Answer: D
Explanation:
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.
NEW QUESTION # 19
Governance can be defined as which of the following?
- A. Governance is a structure specifying the daily operation of a firm.
- B. Governance is being replaced by management in all firms that are regulated.
- C. Governance is a structure specifying the policies, principles, and procedures for making decisions about corporate direction.
- D. Governance is a structure specifying the ways in which reporting is made to the primary regulator.
Answer: C
Explanation:
Definition of Governance
Governance refers to the framework of policies, principles, and processes used to guide corporate decision-making and strategic direction.
It ensures accountability, transparency, and risk oversight within an organization.
Key Elements of Governance
Risk oversight - Ensuring risks are properly identified and managed.
Accountability structures - Defining roles and responsibilities.
Decision-making frameworks - Establishing policies for long-term corporate success.
Why Other Answers Are Incorrect
Option
Explanation:
A . Governance is a structure specifying the daily operation of a firm.
Incorrect - Governance focuses on high-level corporate oversight, not day-to-day operations.
B . Governance is a structure specifying the ways in which reporting is made to the primary regulator.
Incorrect - Governance is broader than just regulatory reporting.
C . Governance is being replaced by management in all firms that are regulated.
Incorrect - Governance and management are separate but complementary; governance provides oversight, while management executes strategy.
PRMIA Reference for Verification
PRMIA 10 Principles of Good Governance
NEW QUESTION # 20
The Internal Loss Multiplier (ILM) is part of the Basel III Standardized Approach. Which of these definitions best descibes it?
- A. It is a financial-statement-based proxy for operational risk.
- B. It is uniform, and is used for indicating consistent incidents on an average return basis.
- C. t is a scaling factor that is based on a bank's average historical losses.
- D. It is a non-financial factor that is based on a bank's average historical losses.
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 # 21
How should Near Misses and Opportunity Costs be treated within Operational Risk?
- A. Ignored.
- B. Recorded and Analyzed. Used in calculation of Operational Risk Capital.
- C. Reported, Recorded and Analyzed, Used in calculation of Operational Risk Capital.
- D. Reported. Recorded and Analyzed. Not Used in calculation of Operational Risk Capital.
Answer: D
Explanation:
Near Misses in Operational Risk
A near miss is an event that could have led to a loss but was avoided or mitigated before actual financial impact occurred.
PRMIA emphasizes that near misses should be reported, recorded, and analyzed because they provide valuable insights into potential vulnerabilities in risk controls.
However, since they did not result in actual financial losses, they are not included in the calculation of Operational Risk Capital.
Opportunity Costs in Operational Risk
Opportunity costs refer to the loss of potential gains due to missed strategic opportunities.
These are not directly quantifiable as operational risk losses and are not included in Operational Risk Capital calculations.
PRMIA's Operational Risk Framework states that operational risk is about actual losses rather than theoretical costs.
Why Other Answers Are Incorrect
Option
Explanation:
A . Ignored.
Incorrect - Near misses and opportunity costs provide valuable insights into operational risk, so they should never be ignored.
B . Recorded and Analyzed. Used in calculation of Operational Risk Capital.
Incorrect - While they should be recorded and analyzed, they are not included in Operational Risk Capital calculations because they do not result in actual losses.
D . Reported, Recorded, and Analyzed, Used in calculation of Operational Risk Capital.
Incorrect - Reporting, recording, and analysis are correct, but they should not be included in capital calculations.
PRMIA Reference for Verification
PRMIA Operational Risk Management Standards - Defines near misses and opportunity costs.
Basel II & III Operational Risk Framework - Outlines the principles of operational risk capital calculations.
NEW QUESTION # 22
The DORA act's full name is which of the following?
- A. Digital Operational Risk Act.
- B. Daily Operational Resilience Act.
- C. Digital Operational Resilience Act.
- D. Domain for Operational Risk Act.
Answer: C
Explanation:
Definition of DORA
The Digital Operational Resilience Act (DORA) is a regulation by the European Union (EU) aimed at strengthening the digital resilience of financial institutions.
It establishes a regulatory framework for managing information and communication technology (ICT) risks in the financial sector.
Key Objectives of DORA
Ensures that financial institutions can withstand, respond to, and recover from cyber threats and ICT-related disruptions.
Introduces standards for risk management, incident reporting, and third-party ICT risk oversight.
Why Other Answers Are Incorrect
Option
Explanation:
A . Domain for Operational Risk Act.
Incorrect - No such regulation exists under this name.
B . Digital Operational Risk Act.
Incorrect - The official name is Digital Operational Resilience Act (DORA).
C . Daily Operational Resilience Act.
Incorrect - DORA is not focused on daily operations but rather long-term digital resilience.
PRMIA Reference for Verification
PRMIA Risk Governance & Digital Resilience Standards
European Commission's Official DORA Regulation
NEW QUESTION # 23
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