PRMIA 8020 Exam Dumps

Step 1: Understanding OFAC

OFAC (Office of Foreign Assets Control) is a U.S. Treasury Department agency responsible for enforcing economic and trade sanctions based on U.S. foreign policy and national security goals.

It prevents financial crime by restricting transactions with sanctioned individuals, entities, and countries.

Step 2: Role of OFAC in Financial Crime Prevention

OFAC administers sanctions to prevent money laundering, terrorism financing, and other illicit activities.

Financial institutions must comply with OFAC regulations to avoid heavy fines and reputational damage.

PRMIA's Financial Crime Risk Guidelines emphasize the importance of OFAC compliance in risk management.

Step 3: Why the Other Options Are Incorrect

Option A ('Office of Financial Asset Control') -- Incorrect wording; OFAC deals with foreign assets, not just financial assets.

Option B ('Office of Foreigner and Other Control') -- OFAC does not regulate foreigners broadly; it targets specific foreign assets and transactions.

Option C ('Office for Asset Control') -- Missing 'Foreign', which is critical to OFAC's function.

PRMIA Risk Reference Used:

PRMIA Financial Crime Risk Management Guidelines -- Emphasizes regulatory compliance with OFAC.

PRMIA Compliance and Sanctions Risk Standards -- Stresses the role of OFAC in preventing illicit financial activities.

Final Conclusion:

OFAC stands for the Office of Foreign Assets Control, 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.

Overview of Basel II Approaches for Operational Risk

Basel II introduced three main approaches to calculating capital requirements for operational risk:

Basic Indicator Approach (BIA)

The Standardized Approach (TSA)

Advanced Measurement Approach (AMA)

Why Answer D is Correct

Alternative Measurement Approach (AMA) is not a recognized Basel II approach.

The correct term under Basel II was Advanced Measurement Approach (AMA).

Why Other Answers Are Incorrect

Option

Explanation

A . Basic Indicator Approach (BIA).

Correct -- A simple approach where capital is set as a fixed percentage of gross income.

B . The Standardized Approach (TSA).

Correct -- Categorizes operational risk into business lines, each with assigned risk factors.

C . Advanced Measurement Approach (AMA).

Correct -- Uses internal models to calculate capital requirements based on loss data, scenario analysis, and risk controls.

PRMIA Reference for Verification

Basel II Framework for Operational Risk (2004)

PRMIA Risk Management Guidelines

Best Practices for Policy Development

Policies should be clearly written, well-structured, and accompanied by training to ensure employees understand their responsibilities.

PRMIA governance principles emphasize the need for training to enhance compliance and operational effectiveness.

Why Answer D is Correct

Training ensures policy adoption and understanding across the organization.

Integrating policies into new employee training helps embed governance and compliance culture.

Why Other Answers Are Incorrect

Option

Explanation

A . Policies should be divided into a large number of short topics to enhance accessibility.

Incorrect -- While policies should be structured for readability, excessive fragmentation can lead to confusion and inefficiency.

B . Policy owners must ensure that policies are read by the regulator and then the shareholders.

Incorrect -- Policies are internal governance tools, not primarily for regulators or shareholders.

C . Hard copies of a new policy should be placed in a central library of governance documents at the CRO's home.

Incorrect -- Policies should be centrally available within the organization, not at a personal location.

PRMIA Reference for Verification

PRMIA Governance Best Practices

ISO 31000 Risk Management Standards

Background of the Barings Case Study

Nick Leeson, a trader at Barings Bank, caused the collapse of the institution due to unauthorized trading in derivatives.

A critical failure was the lack of segregation of duties, allowing Leeson to both execute trades (front-office) and oversee trade settlement (back-office).

How Segregation of Duties Failed

Proper segregation of duties ensures that no single individual has unchecked control over trading and settlement.

Leeson was responsible for both trading (front-office) and settlement (back-office), meaning he could hide losses without detection.

Why Answer A is Correct

A trader (Leeson) should never have been managing back-office functions.

His dual role allowed him to manipulate records and bypass controls, leading to $1.3 billion in losses and the bank's collapse.

Why Other Answers Are Incorrect

Option

Explanation

B . A trader was responsible for managing the front-office.

Incorrect -- Traders are supposed to manage the front-office; the issue was their involvement in back-office functions.

C . A risk manager was responsible for managing the back-office.

Incorrect -- The issue was lack of oversight on the trader, not risk managers handling back-office duties.

D . A trader was responsible for managing the expense account.

Incorrect -- The main issue was the trader's control over trade settlement, not expense accounts.

PRMIA Reference for Verification

PRMIA Case Study on Barings Bank Collapse

Basel Principles on Segregation of Duties in Risk Management