Master PRMIA 8020 Exam with Reliable Practice Questions

Correct : C

Understanding Zero Risk Appetite in Compliance

A zero risk appetite means the organization does not tolerate any compliance breaches.

However, in real-world risk management, it is often impractical to have zero risk exposure.

Some compliance violations may occur despite strong controls, making a strict zero-risk stance unrealistic.

Why Answer C is Correct

If an organization adopts a zero risk appetite for compliance, any compliance issue, even minor ones, would breach this policy.

This contradicts practical risk management, which allows for some residual risk while maintaining controls.

Why Other Answers Are Incorrect

Option

Explanation

A . A zero risk appetite is illegal under all known regulations.

Incorrect -- It is not illegal, but it is impractical in many industries.

B . It means that there can be a risk self-assessment workshop for the compliance department.

Incorrect -- Self-assessments are part of compliance but do not define zero risk appetite issues.

D . It will result in a compliance investigation conducted by the first line.

Incorrect -- Investigations are typically conducted by the second or third line of defense (compliance or audit), not the first line.

PRMIA Reference for Verification

PRMIA Risk Appetite Guidelines

Basel & ISO 31000 Risk Management Frameworks

Correct : B

PRMIA's 10 Principles of Good Governance

PRMIA outlines 10 key principles that focus on risk governance, accountability, transparency, and risk management effectiveness.

These principles ensure strong risk governance structures for financial institutions.

Why Answer B is Correct

Holding the PRM Designation (Professional Risk Manager certification) is NOT a governance principle.

While PRMIA promotes risk education, governance principles focus on organizational risk structures, not individual certifications.

Why Other Answers Are Incorrect

Option

Explanation

A . Risk appetite.

Correct -- PRMIA governance principles include establishing a clear risk appetite.

C . External validation.

Correct -- External audits and validation improve governance and risk transparency.

D . Clear accountability.

Correct -- Governance principles emphasize clear accountability at all levels of management.

PRMIA Reference for Verification

PRMIA 10 Principles of Good Governance

Basel Corporate Governance Guidelines for Financial Institutions

Correct : B

Step 1: Definition of ESG

ESG (Environmental, Social, and Corporate Governance) refers to the three core factors used to evaluate a company's sustainability and ethical impact.

ESG is now a key part of risk management, influencing investment decisions, regulatory compliance, and corporate strategy.

Step 2: Breakdown of ESG Components

Environmental (E): Climate change, carbon emissions, resource management.

Social (S): Diversity & inclusion, labor rights, community engagement.

Governance (G): Board structure, executive pay, corporate ethics.

Step 3: Why the Other Options Are Incorrect

Option A ('Environmental, Strategy, and Corporate Governance')

Incorrect because Strategy is not part of ESG.

Option C ('Enhanced Social Governance')

Incorrect because ESG covers more than just social governance.

Option D ('Extra Social Governance')

Incorrect as it does not align with the recognized ESG definition.

PRMIA Risk Reference Used:

PRMIA ESG Risk Management Guidelines -- Defines ESG factors as Environmental, Social, and Governance.

PRI (Principles for Responsible Investment) -- Aligns ESG with financial risk management.

Correct : C

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.

Correct : C

Step 1: Aligning Strategy with Risk Capacity

Risk capacity is the maximum level of risk a firm can bear based on financial resources, earnings, and capital structure.

Management can adjust risk capacity by modifying risk exposure, balance sheet size, or earnings retention.

Step 2: Why Option C Is Incorrect

Increasing dividends reduces retained earnings, which lowers capital reserves and reduces risk capacity.

Firms seeking to improve risk capacity should retain earnings, not distribute them.

Step 3: Why the Other Options Are Correct

Option A ('Reduce scale of risks') Correct as reducing balance sheet size lowers risk exposure.

Option B ('Improve quality of risks') Correct as taking on lower-risk assets improves stability.

Option D ('Improve retained earnings') Correct as more capital increases risk capacity.

PRMIA Risk Reference Used:

PRMIA Capital Management Framework -- Defines risk capacity and earnings retention strategies.

Basel III Capital Standards -- Stresses retained earnings as a key factor in risk capacity.

Final Conclusion:

Reducing retained earnings through dividends weakens risk capacity, making Option C the correct answer.