What are good examples of non-financial risk and contingency planning in a trading or risk function?

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AcadiFi · Accepted Answer

Non-financial risk includes the failures that can damage a risk function even when market prices behave normally. Examples include system outages, cyber incidents, vendor failure, bad data feeds, key-person dependency, communication breakdowns, and legal or conduct failures. Contingency planning means deciding in advance how the firm will keep critical processes running when those failures happen.

Suppose Silver Harbor Trading loses its primary market-data feed during a volatile session. That is not market risk in the classic sense, but it can create bad hedges, stale valuations, and delayed limit reporting. A proper contingency plan might include backup vendors, manual pricing thresholds, escalation trees, and preapproved fallback procedures.

FRM questions typically reward specificity. Do not stop at saying "technology risk." Ask what fails, who acts, how quickly, and what backup control exists. Think in terms of business interruption, bad decisions, and control failure. Those channels make operational scenarios much easier to recognize and rank on the exam under time pressure and stress. Operational resilience is about preserving core processes under severe stress, not just documenting them in a binder. Strong contingency planning connects critical business functions to response ownership, alternative channels, escalation paths, and post-event review. Practice more in our FRM question bank.

What are good examples of non-financial risk and contingency planning in a trading or risk function?

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