Moving a risk to another party through insurance, hedging or contract. It does not remove the risk of the other party failing.
Where you will meet it
Risk transfer comes up in 3 learning outcome notes across the FRM syllabus.
A few of them:
Fundamentals of Credit Risk FRM Part II · Credit risk measurement and management
“Risk transfer has its own costs, basis risk and counterparty risk, and it may damage client relationships, so retaining small or well-priced exposures can be rational.”
Digital Resilience and Financial Stability: The Quest for Policy Tools in the Financial Sector FRM Part II · Current issues in financial markets
“Others are direct oversight of critical third-party providers with concentration limits and exit plans, coordinated crisis playbooks, recovery and resolution planning, and risk transfer or backstop arrangements.”
An Introduction to Securitisation FRM Part II · Credit risk measurement and management
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