Curious about Actual PRMIA ORM (8020) Exam Questions?

Correct : B

The FTX collapse involved fraudulent fund mismanagement, where FTX executives created a 'backdoor' to allow Alameda Research (FTX's sister trading firm) to borrow client funds without their consent.

Step 1: The 'Backdoor' in FTX

The backdoor was a hidden code in FTX's system, allegedly created by Sam Bankman-Fried, which allowed Alameda to access customer deposits without triggering alerts to auditors or compliance teams.

Alameda used these funds for risky trading strategies and investments, leading to the eventual collapse of FTX when a liquidity crunch exposed the missing funds.

Step 2: Why the Other Options Are Incorrect

Option A ('allowed a stablecoin to be removed from the ledger and added to the balance sheet')

Incorrect because FTX's fraud involved misuse of customer funds, not just a stablecoin misclassification.

Option C ('allowed currency traders to smooth profits and conceal losses for over two years')

Incorrect because this sounds more like LIBOR-rigging scandals, whereas FTX misappropriated client funds.

Option D ('allowed a rapid pace of acquisitions but poor integration of acquired companies')

Incorrect because FTX's collapse was due to financial fraud, not poor acquisition strategy.

PRMIA Risk Reference Used:

PRMIA Financial Crime Risk Management -- Discusses insider risk and fraudulent misappropriation of funds.

FTX Collapse Reports -- SEC, CFTC, and DOJ filings confirm that Alameda had unauthorized access to client funds.

Final Conclusion:

FTX's backdoor enabled Alameda to take $65 billion in client funds without permission, making Option B the correct answer.

Correct : D

Step 1: Definition of Climate Risk

PRMIA and global financial regulators define climate risk as the financial, operational, and societal risks arising from climate change.

Climate risks impact businesses through physical risks (e.g., floods, wildfires) and transition risks (e.g., regulatory changes, carbon pricing).

Step 2: Why the Other Options Are Incorrect

Option A ('Climate risk has been moved out of all risk taxonomies due to international agreement')

Incorrect because climate risk is now a central part of risk taxonomies, as emphasized by PRMIA, Basel III, and TCFD.

Option B ('Climate risk refers to the growing impacts of credit risk on the business environment')

Incorrect because credit risk is just one aspect of climate risk, not the full definition.

Option C ('Climate risk refers to change in the business climate during a recession')

Incorrect because climate risk is about environmental change, not economic cycles.

PRMIA Risk Reference Used:

PRMIA Climate Risk Guidelines -- Defines climate risk as a financial and societal risk due to climate change.

TCFD (Task Force on Climate-Related Financial Disclosures) -- Outlines regulatory expectations for climate risk management.

Final Conclusion:

Climate risk involves physical and transition risks from climate change, making Option D the correct answer.

Correct : D

Process Mapping is a risk management tool used to visualize workflows, identify inefficiencies, and detect control gaps. PRMIA defines process mapping as an essential operational risk management tool.

Step 1: Understanding Process Mapping

Helps analyze complex, process-intensive activities (Option A).

Reveals control weaknesses that could lead to operational risks (Option B).

Improves hand-offs and collaboration between teams (Option C).

Step 2: Why 'All of the Above' is Correct

Process mapping serves multiple risk management purposes, making all listed options valid.

PRMIA Risk Reference Used:

PRMIA Operational Risk Management Guidelines -- Recommends process mapping to identify inefficiencies and control gaps.

PRMIA Risk Governance Framework -- Encourages visualization tools for process improvement.

Final Conclusion:

Process mapping improves risk awareness, identifies control gaps, and enhances operational workflows, making Option D the correct answer.

Correct : A

Definition of Key Risk Indicators (KRIs)

KRIs are quantitative metrics used to monitor risk levels and detect early warning signs of potential risk events.

Top-down KRIs are identified at the senior management level and focus on enterprise-wide risk exposure.

Key Properties of Top-Down KRIs

Selected by senior management to ensure alignment with strategic objectives.

Tied to material external and internal loss exposures to capture critical financial, operational, and strategic risks.

Used to manage changes in the business environment to ensure proactive risk response, especially under stress conditions.

Why Other Answers Are Incorrect

Option

Explanation

B . Selected by senior management, used to manage changes in the business environment, especially under periods of stress, and reported on a daily basis.

Incorrect -- Top-down KRIs are not reported daily; they are monitored periodically (e.g., quarterly).

C . Selected by junior management, used to manage changes in the business environment, especially under periods of stress, and reported on an annual basis.

Incorrect -- Junior management does not define top-down KRIs; senior management does. Also, annual reporting is too infrequent.

D . Can only be selected by the board in line with risk ratings.

Incorrect -- The board provides oversight, but senior risk management selects KRIs, not just the board.

PRMIA Reference for Verification

PRMIA Risk Indicator Guidelines

Basel Committee on Banking Supervision (BCBS) Principles for Effective Risk Data Aggregation

Correct : B

Definition of Confidence Accounting

Confidence Accounting challenges traditional accounting by introducing probability distributions and ranges rather than fixed numbers for financial reporting.

This approach improves transparency and risk awareness by acknowledging uncertainty in financial figures.

Why Answer B is Correct

Encourages using ranges (confidence intervals) instead of discrete values to better reflect uncertainty.

Used in risk-sensitive industries where financial estimates vary due to external factors (e.g., credit risk, market fluctuations).

Why Other Answers Are Incorrect

Option

Explanation

A . An approach that encourages companies and audit firms to have diverse boards.

Incorrect -- Board diversity is unrelated to Confidence Accounting.

C . An approach that encourages companies and audit firms to use regular statements in their AI software.

Incorrect -- AI may use probability models, but Confidence Accounting is an accounting methodology, not an AI approach.

D . An approach that encourages companies and audit firms to stop using figures and maths.

Incorrect -- Confidence Accounting still relies on mathematical models; it does not eliminate numerical analysis.

PRMIA Reference for Verification

PRMIA Financial Risk Reporting Standards

IFRS (International Financial Reporting Standards) Guidelines on Probability-Based Accounting