Question

At a mid-sized bank, the head of the risk management function also holds direct operational responsibility for approving high-value loan transactions to meet aggressive quarterly lending targets. During an internal review, the audit committee raises concerns that this arrangement undermines the effectiveness of the three lines of defense model. Which action should the risk practitioner recommend to best address the committee's concern?

Accepted Answer

Separate the loan approval duties from the risk management function so the second line remains independent of the operational activities it oversees

Answer

Retain the combined role but require internal audit to review all high-value loan approvals monthly

Answer

Increase the loan approval threshold so fewer transactions require the risk head's sign-off

Answer

Document the arrangement in the risk register and accept it as a residual risk approved by management