FRM Changes 2022

FRM Changes 2022

At AnalystPrep, we endeavor to keep FRM exam candidates abreast of all curriculum changes to ensure they concentrate their efforts only on relevant and testable material. This is part of our overall objective to provide you with all the resources needed to pass the exam and set yourself up nicely for a rewarding career in finance and risk management. In lockstep with the 2020/2021 academic year, there are yet again FRM changes 2022 to look out for. This is great news for candidates because it means any concepts gained over the past few exam sessions and recent practice exams are, to a large extent, valid and relevant for 2022.

Following is a reading-by-reading breakdown of all the changes, plus a more detailed Excel sheet that specifies the learning outcomes that have been added, deleted, or reworded. The exam format is multiple-choice and computer-based.

Part I 2021 2022 % of total
Total no. Of LOs   458  
New Readings   0  
Deleted Readings   0  
New LOs   3 < 1%
Deleted LOs   11 2%
Reworded LOs   2 < 1%

 

Part I 2021 2022 % of total
Total no. Of LOs   543  
New Readings   9  
Deleted Readings   10  
New LOs   1 < 1%
Deleted LOs   4 < 1%
Reworded LOs   3 < 1%

FRM Changes 2022 Part I

Topic 1 – Foundations of Risk Management (20%)

As has been the case in the last few years, there have been no updates in Foundations of Risk Management. This is good news for candidates, particularly because the topic is much wordier than all the others. It may be easy to memorize formulas. However, understanding concepts hidden among rows and rows of text is almost always more challenging.

New Readings: 0

Added LOs: 1

Deleted LOs: 0

FRM – 8: Enterprise Risk Management (ERM) and Future Trends

LO: Describe the motivations for a firm to adopt an ERM initiative.

Reworded LOs: 0

Topic 2 – Quantitative Analysis (20%)

The FRM exam is strongly anchored on quantitative analysis of various concepts. In your career as a risk analyst, you’ll be involved in statistical analysis of your firm’s performance and the performance of the market. On this basis, it’s no surprise that statics and probability are a key part of the FRM program.

The good news is that there haven’t been significant changes in Quantitative Analysis.

New Readings: 0

Added LOs: 0

Deleted LOs: 0

Reworded LOs: 0

Topic 3 – Financial Markets and Products (30%)

An in-depth understanding of financial markets is integral to risk management, particularly when it comes to hedging. You need a detailed understanding of each category of derivative works, including options, swaps, futures, forwards, and mortgage-backed securities.

There have been no new readings in 2022 on this topic. However, there are several new, deleted, and reworded learning outcomes:

New Readings: 0

Added LOs: 1

FMP – 10: Pricing Financial Forwards and Futures

LO: Define and describe financial assets.

Deleted LOs: 4

FMP – 10: Pricing Financial Forwards and Futures

LO: Differentiate between investment and consumption assets.

LO: Calculate a forward foreign exchange rate using the interest rate parity relationship.

FMP – 11: Commodity Forwards and Futures

LO: Compare the lease rate with the convenience yield.

FMP – 19: Interest Rate Futures

LO: Explain how Eurodollar futures can be used to extend the LIBOR zero curve.

Reworded LOs: 1

FMP – 8: Using Futures for Hedging

LO: Define and calculate the basis, discuss various sources of basis risk, and explain how basis risks arise when hedging with futures.

Topic 4 – Valuation and Risk Models (30%)

Valuation and Risk Models is a topic that has proven to be a major determinant of exam scores in the FRM program thanks to a 30% exam weighting spread out across 16 Readings. Although many Readings are dedicated to models used to measure risk, Topic 4 is also steeped in market risk analysis using tools such as interest rates, the “Greeks,” and stress testing.

In 2022, the following changes were made to the Valuation and Risk Models:

New Readings: 0

Added LOs: 2

VRM – 6: Measuring Credit Risk

LO: Describe the degree of dependence typically observed among the loan defaults in a bank’s loan

portfolio, and explain the implications for the portfolio’s default rate.

VRM – 8: Stress Testing

LO: Describe the role of policies and procedures, validation, and independent review in stress

testing governance.

Deleted LOs: 6

VRM – 1: Measures of Financial Risk

LO: Explain the limitations of the mean-variance framework with respect to assumptions about return distributions.

VRM – 3: Measuring and Monitoring Volatility

LO: Calculate conditional volatility using parametric and non-parametric approaches.

LO: Calculate conditional volatility with and without mean reversion.

LO: Describe the impact of mean reversion on long-horizon conditional volatility estimation.

VRM – 5: Country Risk: Determinants, Measures, and Implications

LO: Identify sources of country risk.

VRM – 8: Stress Testing

LO: Identify elements of clear and comprehensive policies, procedures, and documentation for stress testing.

LO: Identify areas of validation and independent review for stress tests that require attention from a governance perspective.

Reworded LOs: 1

VRM – 3: Measuring and Monitoring Volatility

LO: Compare and contrast different approaches for estimating conditional volatility.

FRM Changes 2022 Part II

Topic 1 – Market Risk Measurement and Management (20%)

Market Risk Measurement and Management is one of the six topics covered in GARP’s FRM Part 2 exam. Approximately 20% of the exam is devoted to this topic. Consequently, this translates to 16 questions out of the 80 questions in the exam. This area focuses on market risk measurement and management techniques.

There have been no major changes in this topic in 2022. Only one learning objective has been reworded:

New Readings: 0

Added LOs: 0

Deleted LOs: 0

Reworded LOs: 1

MR-3: Parametric Approaches (II): Extreme Value

LO: Explain the multivariate EVT for risk management.

Topic 2 – Credit Risk Measurement and Management (20%)

Credit Risk Measurement and Management is designed to assess the candidate’s understanding of credit risk management in relation to structured finance and credit products, such as mortgage-backed securities, collateralized loan obligations, and credit derivatives. Candidates are expected to learn and apply methods used to mitigate credit risk in the lending and derivatives markets. There’s a fair mix of computational and non-computational learning outcomes.

2022 learning objectives for this topic are largely unchanged, which is good news for candidates, especially when you consider that there are 18 Readings.

New Readings: 0

Added LOs: 0

Deleted LOs: 0

Reworded LOs: 1

CR – 12: Future Value and Exposure

LO: Describe and calculate the following metrics for credit exposure: expected mark-to-market, expected exposure, potential future exposure, expected positive exposure and negative exposure, effective expected positive exposure, and maximum exposure.

Topic 3: Operational Risk and Resiliency (20%)

Operational Risk and Resiliency generally encompasses the management of the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events. Operational risk management has taken center stage over the years due to the dynamic and unpredictable nature of operational risks. This can be demonstrated via the ever-evolving guidelines from the Basel Committee on Banking Supervision (BCBS). On this basis, it’s not surprising that we have two new readings in 2022.

New Readings: 2

ORR – 25: Operational resilience – Impact tolerance for important business services

ORR – 26: Principles for Operational Resilience

Added LOs: 1

ORR – 5: Banking Conduct and Culture: A Permanent Mindset Change

LO: Assess the role of regulators in encouraging strong conduct and culture at banks, and provide examples of regulatory initiatives in this area.

Deleted Readings: 1

ORR – 25: Building the UK financial sector’s operational resilience

Deleted LOs: 3

ORR – 4: Implementing Robust Risk Appetite Frameworks to Strengthen Financial Institutions

LO: Explain the relationship between a firm’s RAF and its risk culture and between the RAF and a firm’s strategy and business planning process.

ORR – 5: Banking Conduct and Culture: A Permanent Mindset Change

LO: Explain how a bank can structure performance incentives and make staff development decisions to encourage a strong corporate culture.

LO: Summarize expectations by different national regulators for banks’ conduct and culture.

Reworded LOs: 0

Topic 4 – Liquidity and Treasury Risk Measurement and Management (15%)

Liquidity risk is one of the core risks every firm should strive to keep at a minimum. An acute shortage of liquidity has been found to have brought down some of the largest and wealthiest institutions around the world. This is why GARP has dedicated an entire topic to liquidity risk management. And with an exam weight of 15%, you can expect around 12 questions from this topic.

Like most of the other topics in the FRM program, there are no notable changes in Liquidity and Treasury Risk Measurement and Management in 2022.

New Readings: 0

New Los: 0

Deleted Los: 0

Reworded Los: 0

Topic 5 – Risk Management and Investment Management (15%)

This area examines the risk management techniques applied to the investment management process. The broad knowledge points covered in Risk Management and Investment Management include factor theory, risk budgeting, portfolio construction, risk monitoring, and portfolio-based performance analysis. There are 11 readings in this area. With a 15% weight in the exam, you may expect 12 questions from this area.

No changes have been made to this area in 2022.

New Readings: 0

New Los: 0

Deleted Los: 0

Reworded Los: 0

Topic 6 – Current Issues in Financial Markets (10%)

CI – 1: Machine Learning and AI for Risk Management

CI – 2: Artificial Intelligence Risk & Governance

CI – 3: Covid-19 and cyber risk in the financial sector

CI – 4: Holistic Review of the March Market Turmoil

CI – 5: LIBOR transition Case studies for navigating conduct risks

CI – 7: Climate-related risk drivers and their transmission channels

CI – 8: The Rise of digital money

Deleted readings: 9

Retained readings: 1

CI – 6: Beyond LIBOR: a primer on the new benchmark rates

With a 10% weight in the exam, you may expect 8 questions from this section.

FRM I

Reading No. Reading Name Changes New Los Deleted Los Reworded Los
 

Foundations of Risk Management

       
FRM-1 The Building Blocks of Risk Management None      
FRM-2 How Do Firms Manage Financial Risk? None      
FRM-3 The Governance of Risk Management None      
FRM-4 Credit Risk Transfer Mechanisms None      
FRM-5 Modern Portfolio Theory (MPT) and the Capital Asset Pricing Model (CAPM) None      
FRM-6 The Arbitrage Pricing Theory and Multifactor Models of Risk and Return None      
FRM-7 Principles for Effective Data Aggregation and Risk Reporting None      
FRM-8 Enterprise Risk Management (ERM) and Future Trends Yes 1 0 0
FRM-9 Learning from Financial Disasters        
FRM-10 Anatomy of the Great Financial Crisis of 2007-2009 None      
FRM-11 GARP Code of Conduct* None      
 

Quantitative Analysis

       
QA-1 Fundamentals of Probability        
QA-2 Random Variables        
QA-3 Common Univariate Random Variables        
QA-4 Multivariate Random Variables        
QA-5 Sample Moments        
QA-6 Hypothesis Testing        
QA-7 Linear Regression        
QA-8 Regression With Multiple Explanatory Variables        
QA-9 Regression Diagnostics        
QA-10 Stationary Time Series        
QA-11 Non-Stationary Time Series        
QA-12 Measuring Returns, Volatility, and Correlation        
QA-13 Simulation and Bootstrapping        
 

Financial Markets and Products

       
FMP-1 Banks        
FMP-2 Insurance Companies and Pension Plans        
FMP-3 Fund Management        
FMP-4 Introduction to Derivatives        
FMP-5 Exchanges and OTC Markets        
FMP-6 Central Clearing        
FMP-7 Futures Markets        
FMP-8 Using Futures for Hedging Yes 0 0 1
FMP-9 Foreign Exchange Markets        
FMP-10 Pricing Financial Forwards and Futures Yes 1 2 0
FMP-11 Commodity Forwards and Futures Yes 0 1 0
FMP-12 Options Markets        
FMP-13 Properties of Options        
FMP-14 Trading Strategies        
FMP-15 Exotic Options        
FMP-16 Properties of Interest Rates        
FMP-17 Corporate Bonds        
FMP-18 Mortgages and Mortgage-Backed Securities        
FMP-19 Interest Rate Futures Yes 0 1 0
FMP-20 Swaps        
 

Valuation and risk models

       
VRM-1 Measures of Financial Risk        
VRM-2 Calculating and Applying VaR        
VRM-3 Measuring and Monitoring Volatility Yes 0 3 1
VRM-4 External and Internal Credit Ratings        
VRM-5 Country Risk: Determinants, Measures, and Implications Yes 0 1 0
VRM-6 Measuring Credit Risk Yes 1 1 0
VRM-7 Operational Risk        
VRM-8 Stress Testing Yes 1 2 0
VRM-9 Pricing Conventions, Discounting, and Arbitrage        
VRM-10 Interest Rates        
VRM-11 Bond Yields and Return Calculations        
VRM-12 Applying Duration, Convexity, and DV01        
VRM-13 Modeling Non-Parallel Term Structure Shifts and Hedging        
VRM-14 Binomial Trees        
VRM-15 The Black-Scholes-Merton Model        
VRM-16 Option Sensitivity Measures: The “Greeks”        

FRM II

Reading No. Reading Name Changes New LOs Deleted Los Reworded Los
 

Market Risk Measurement and Management

       
MR-1 Estimating Market Risk Measures: An Introduction and Overview        
MR-2 Non-Parametric Approaches        
MR-3 Parametric Approaches (II): Extreme Value Yes 0 0 1
MR-4 Backtesting VaR        
MR-5 VaR Mapping        
MR-6 Messages from the academic literature on risk measurement for the trading book        
MR-7 Correlation Basics: Definitions, Applications, and Terminology        
MR-8 Empirical Properties of Correlation: How Do Correlations Behave in the Real World?        
MR-8 Empirical Properties of Correlation: How Do Correlations Behave in the Real World?        
MR-9 Financial Correlation Modeling — Bottom-Up Approaches (pages 126-134 only)        
MR-10 Empirical Approaches to Risk Metrics and Hedging        
MR-11 The Science of Term Structure Models        
MR-12 The Evolution of Short Rates and the Shape of the Term Structure        
MR-13 The Art of Term Structure Models: Drift        
MR-14 The Art of Term Structure Models: Volatility and Distribution        
MR-15 Volatility Smiles        
MR-16 Fundamental Review of the Trading Book        
 

Credit Risk Measurement and Management

       
CR-1 The Credit Decision        
CR-2 The Credit Analyst        
CR-3 Capital Structure in Banks        
CR-4 Rating Assignment Methodologies        
CR-5 Credit Risks and Credit Derivatives        
CR-6 Spread Risk and Default Intensity Models        
CR-7 Portfolio Credit Risk        
CR-8 Structured Credit Risk        
CR-9 Counterparty Risk and Beyond        
CR-10 Netting, Close-out and Related Aspects        
CR-11 Margin (Collateral) and Settlement        
CR-12 Future Value and Exposure Yes 0 0 1
CR-13 CVA        
CR-14 The Evolution of Stress Testing Counterparty Exposures        
CR-15 Credit Scoring and Retail Credit Risk Management        
CR-16 The Credit Transfer Markets — and Their Implications        
CR-17 An Introduction to Securitization        
CR-18 Understanding the Securitization of Subprime Mortgage Credit        
 

Operational Risk and Resiliency

       
ORR-1 Revisions to the Principles for the Sound Management of Operational Risk        
ORR-2 Enterprise Risk Management: Theory and Practice        
ORR-3 What Is ERM?        
ORR-4 Implementing Robust Risk Appetite Frameworks to Strengthen Financial Institutions Yes 0 1 0
ORR-5 Banking Conduct and Culture: A Permanent Mindset Change Yes 1 2 0
ORR-6 Risk Culture        
ORR-7 OpRisk Data and Governance        
ORR-8 Supervisory Guidance on Model Risk Management        
ORR-9 Information Risk and Data Quality Management        
ORR-10 Validating Rating Models        
ORR-11 Assessing the Quality of Risk Measures        
ORR-12 Risk Capital Attribution and Risk-Adjusted Performance Measurement        
ORR-13 Range of Practices and issues in economic capital frameworks        
ORR-14 Capital Planning at Large Bank Holding Companies: Supervisory Expectations and Range of Current
Practice
       
ORR-15 Stress Testing Banks        
ORR-16 Guidance on Managing Outsourcing Risk        
ORR-17 Management of Risks Associated with Money Laundering and Financing of Terrorism        
ORR-18 Regulation of the OTC Derivatives Market        
ORR-19 Capital Regulation Before the Global Financial Crisis        
ORR-20 Solvency, Liquidity and Other Regulation After the Global Financial Crisis        
ORR-21 High-level summary of Basel III reforms        
ORR-22 Finalizing post-crisis reforms        
ORR-23 The Cyber-Resilient Organization        
ORR-24 Cyber-resilience: Range of practices        
ORR-25 Operational resilience: Impact tolerance for important business services New Reading 4 0 0
ORR-26 Principles for Operational Resilience New Reading 2 0 0
ORR-27 Striving for Operational Resilience: The Questions Boards and Senior Management Should Ask Yes 0 1 0
 

Liquidity and Treasury Risk Measurement and Management

       
LTR-1 Liquidity Risk        
LTR-2 Liquidity and Leverage        
LTR-3 Early Warning Indicators        
LTR-4 The Investment Function in Financial-Services Management        
LTR-5 Liquidity and Reserves Management: Strategies and Policies        
LTR-6 Intraday Liquidity Risk Management        
LTR-7 Monitoring Liquidity        
LTR-8 The Failure Mechanics of Dealer Banks        
LTR-9 Liquidity Stress Testing        
LTR-10 Liquidity Risk Reporting and Stress Testing        
LTR-11 Contingency Funding Planning        
LTR-12 Managing and Pricing Deposit Services        
LTR-13 Managing Non-Deposit Liabilities Yes 0 0 1
LTR-14 Repurchase Agreements and Financing        
LTR-15 Liquidity Transfer Pricing        
LTR-16 The US Dollar Shortage in Global Banking and the International Policy Response        
LTR-17 Covered Interest Parity Lost: Understanding the Cross-Currency Basis        
LTR-18 Risk Management for Changing Interest Rates: Asset-Liability Management and Duration Techniques        
LTR-19 Illiquid Assets        
 

Risk Management and Investment Management

       
IM-1 Factor Theory        
IM-2 Factors        
IM-3 Alpha (and the Low-Risk Anomaly)        
IM-4 Portfolio Construction        
IM-5 Portfolio Risk: Analytical Methods        
IM-6 VaR and Risk Budgeting in Investment Management        
IM-7 Risk Monitoring and Performance Measurement        
IM-8 Portfolio Performance Evaluation        
IM-9 Hedge Funds        
IM-10 Performing Due Diligence on Specific Managers and Funds        
IM-11 Predicting Fraud by Investment Managers        
 

Current Issues in Financial Markets

       
CI-1 Machine Learning and AI for Risk Management New Reading 4    
CI-2 Artificial Intelligence Risk & Governance New Reading 4    
CI-3 Covid-19 and cyber risk in the financial sector New Reading 5    
CI-4 Holistic Review of the March Market Turmoil New Reading 7    
CI-5 LIBOR transition Case studies for navigating conduct risks New Reading 2    
CI-6 Beyond LIBOR: a primer on the new benchmark rates No Reading      
CI-7 Climate-related risk drivers and their transmission channels New Reading 4    
CI-8 The Rise of digital money New Reading 5