FRM Part II · FRM Exam Part II · Risk Measurement and Assessment
A bank's KRI dashboard shows that its 'number of failed trade confirmations outstanding more than 5 days' indicator is green, yet the operations head believes the risk is rising because of a recent system migration. What is the most appropriate action by the operational risk function?
The function should review whether the KRI and its thresholds still capture migration-related risk drivers and add or recalibrate indicators as needed. KRIs must evolve with changes in the business; ignoring concerns, abandoning KRIs or reducing monitoring frequency would lessen visibility during a period of higher risk.
- AIgnore the concern because the KRI is the official measure of risk
- BReview whether the KRI and its thresholds still capture the migration-related risk drivers, and add or recalibrate indicators if neededCorrect
- CReplace all KRIs with scenario analysis because KRIs cannot capture change
- DLower the reporting frequency of the KRI to reduce noise during the migration
Explanation
KRIs should be reviewed and recalibrated as the business and risk drivers change. A green indicator may be blind to new drivers such as migration issues, so adding or adjusting indicators is appropriate. KRIs complement rather than are replaced by scenarios, and reducing frequency lowers visibility during higher risk.
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