PRM Exam IV

Case Studies, Standards of Best Practice, Conduct and Ethics, and PRMIA Governance

Exam IV of the PRM certification tests a candidate’s knowledge and understanding of the Case Studies,
Standards of Best Practice, Conduct and Ethics and PRMIA Governance.

Exam IV is where we study some failed practices, standards for the performance of the duties of a Professional
Risk Manager, and the governance structure of our association, the Professional Risk Manager’s
International Association.

The following syllabus and objective statements are as per the latest PRM Guide.

Note: If an LOS is a link, that means the material for that LOS is available. The dates mentioned against each LOS is the date when the study material for that LOS is scheduled to arrive.

Case Studies

  • Barings

    • Describe how the massive losses were incurred
    • Describe why the true position was not noticed earlier
    • Describe the role of the External Auditors
    • Describe the supervision done by the Bank of England
    • Describe the role of The Securities And Futures Authority (SFA, now knownas the Financial Services Authority, the FSA)
    • Describe the Lessons learnt from the Barings Case Study
    • Discuss the events leading up to the losses, the risks incurred and the mitigation processes described

  • National Australia Bank – FX Options

    • Describe the sequence of events and trading activities that led to the losses
    • Describe the analysis of the losses and how they occurred, with an initial focus on foreign currency option transactions entered into on or after 1 October 2003
    • Describe the key policies, procedures, systems and control failures within the foreign currency options trading business responsible for the losses.
    • Describe the Impacts on customers and third parties
    • Discuss the events leading up to the losses, the risks incurred and the mitigation processes described

  • Bankgesellschaft Berlin

    • Describe the Timeline of Events
    • Describe how property-based funds carried unforeseen and uncovered risks
    • Describe the lessons learnt
    • Discuss the events leading up to the losses, the risks incurred and the mitigation processes described

  • Taisei Fire and Marine Insurance Co.

    • Describe how events of the 9/11 World Trade terrorist attack brought about massive reinsurance losses – US2.5 billion – when they thought they were fully covered
    • Differentiate between ‘full’ and ‘finite’ reinsurance cover
    • Discuss potential mitigation measures which would have avoided or lessened the losses
    • Discuss the need for stress and scenario testing for the low-frequency-high impact incidences

  • Washington Mutual

    • Describe how the bank’s acquisition of Long Beach Financial in 1999, and Providian in 2005 – both forays into sub-prime lending – brought about the eventual shrinkage of the credit quality of the bank’s loan book
    • Describe the effect and dependency of FHLB funding when only 60% of the bank’s assets were funded by depositors
    • Characterize the deteriorating effect on earnings that substantially increased provisions and net charge-offs would have
    • Identify the events of 2007/8 which contributed significantly to the seizure of
      the bank by federal authorities

  • Fannie Mae and Freddie Mac

    • Describe how the intervention of politicians, and the creativity of banks in selling to sub-prime lenders, overwhelmed the capabilities of both organizations, and derailed what was essentially a viable and valuable business model
    • Describe how the computer models were ineffective in stress testing the multiplicity of variable repayment and interest plans initially sold to sub-prime lenders
    • Characterize the fundamentals of disintermediation within the asset backed securities value-chain
    • Show how intricately linked the originate-and-distribute model is to investor confidence, both locally and globally

  • LTCM

    • Describe the events that led to the collapse of LTCM
    • Describe the lessons learnt
    • Describe how UBS made a loss due to LTCM
    • Discuss the events leading up to the losses, the risks incurred and the mitigation processes described

  • Bankers Trust

    • Describe the Timeline of Events
    • Describe the lessons learnt
    • Discuss the events leading up to the losses, the risks incurred and the mitigation processes described

  • Orange County

    • Describe the Timeline of Events
    • Describe the lessons learnt
    • Discuss the events leading up to the losses, the risks incurred and the mitigation processes described

  • Northern Rock

    • Describe the Timeline of Events
    • Describe how the bank’s business model was a significant contributory factor in the crisis
    • Understand how liquidity management is so vitally important when managing a mismatched funding book
    • Describe the multi-dimensional (co-variance) risk problems of Northern Rock
    • Understand Reputational Risk, and the difference between Solvency and Liquidity
    • Discuss the role of the regulator, and Bank of England
    • Discuss the events leading up to the losses, the risks incurred, the eventual UK government rescue operation, and the mitigation process described

  • Metallgesellschaft

    • Describe the trading strategies employed by the conglomerate
    • Describe how proper supervision could have averted disaster
    • Describe how similar financial crises may be avoided in the future
    • Discuss the events leading up to the losses, the risks incurred and the mitigation processes described

  • Worldcom

    • Describe the Timeline of Events
    • Describe the lessons learnt
    • Discuss the events leading up to the losses, the risks incurred and the mitigation processes described

  • China Aviation Oil

    • Describe how the absence of corporate risk management objectives, policies and reporting, lead to the losses being incurred and hidden
    • Describe how proper supervision could have averted the losses
    • Discuss the events leading up to the losses, the risks incurred and the mitigation processes described
    • Describe how the difference in the accounting requirements of IFRS and IAS 39 lead to the misreporting of the losses

Standards of Best Practice, Conduct and Ethics, and PRMIA Governance

  • Group of Thirty Best Practices

    • Describe the Twenty Four Recommendations made by the Study Group

  • PRMIA Governance Principles

    • List the Seven Principles of Corporate Governance
    • Describe the applications of the Principles

  • PRMIA Standards of Best Practice, Conduct and Ethics

    • Describe the Purpose of Professional Standards
    • Describe the Guidance on Best Practices
    • Describe the Guidance on Professional Conduct
    • Describe the Guidance on Ethical Behavior
    • Describe the Guidance on Conflict Resolution

  • PRMIA Bylaws

    • Describe Article 1: Name, Corporate Offices And Official Language
    • Describe Article 2: Mission Statement And Purpose
    • Describe Article 3: Membership
    • Describe Article 4: Meetings Of Members And Regional Directors
    • Describe Article 5: Board Of Directors
    • Describe Article 6: Officers And Duties
    • Describe Article 7: Committees
    • Describe Article 8: Regional Chapters
    • Describe Article 9: Finances
    • Describe Article 10: Indemnification
    • Describe Article 11: General Provisions
    • Describe Article 12: Amendments