HKSI Paper 7 Financial risk management question: fund administrator expects pricing-error losses of about HK$50,000 a year

Answer: A. Risk acceptance, as the firm itself still bears the losses

Risk acceptance (retention) means the firm knowingly bears a risk itself. Setting aside its own money in an internal self-insurance fund is a way of financing retained losses: no outside party pays, so the risk has not been transferred, whatever the fund is called. Transfer needs a third party, such as an insurer or protection seller, to bear the loss. The fund does not change how often errors happen or how large they are, so it is not reduction, and the firm keeps the activity, so it is not avoidance. Source: Standard risk management framework (risk treatment: avoid, reduce, transfer, accept) (as at October 2026).