2016-FRR Exam Dumps | Which one of the following four statements regarding the analysis of recoveries in operational risk reporting

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Financial Risk and Regulation (FRR) Series
GARP.2016-FRR.v2025-06-21.q161
Question 15

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Question 15/161

Which one of the following four statements regarding the analysis of recoveries in operational risk reporting is correct?

A. Recoveries are usually driven by automated processes

B. Recovery analysts cannot be used to improve the recovery rate

C. Recovery analysis can demonstrate the importance of the operational risk function

D. The experience of personnel within the recovery team has no effect on the recovery rate

Correct Answer: C

Comprehensive and Detailed In-Depth Explanation:
Recovery analysis in operational risk involves assessing the amounts recovered after an operational loss event (e.g., through insurance, legal settlements). According to Basel II's operational risk framework, analyzing recoveries helps quantify the net impact of losses and highlights the effectiveness of the operational risk function in mitigating losses. Option C is correct because such analysis can justify the resources allocated to operational risk management by showing its value in reducing net losses. Option A is incorrect as recoveries often involve manual processes (e.g., negotiations), not just automation. Option B is false because analysts can improve recovery rates through better strategies. Option D is incorrect as experienced personnel can enhance recovery outcomes.
Reference:BCBS, "Basel II: International Convergence of Capital Measurement and Capital Standards," June
2006, para. 665-666; GARP FRR Study Notes, Operational Risk Section.

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