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