A careful investigation of a counterparty, investment or provider before committing to it. It aims to find risks the headline information does not show.
Where you will meet it
Due diligence comes up in 16 learning outcome notes across the FRM syllabus.
A few of them:
Advances in Artificial Intelligence: Implications for Capital Markets Activities FRM Part II · Current issues in financial markets
“They also need model validation and ongoing monitoring, sound data quality, explainability, human oversight, and third-party risk management with due diligence and exit plans.”
Risk Mitigation FRM Part II · Operational risk and resilience
“Acquisitions add integration risks such as incompatible systems, data migration errors, loss of key staff, clashing cultures and control standards, and legacy problems missed in due diligence.”
VaR and Risk Budgeting in Investment Management FRM Part II · Risk management and investment management
“Correlations with other assets tend to rise in stress, and operational and style-drift risks need due diligence.”
Cyber-resilience: Range of practices FRM Part II · Operational risk and resilience
“Practice therefore includes risk-based tiering of providers by criticality, security due diligence and contracts with security requirements.”
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