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FRM Part II · FRM Exam Part II · Risk Governance

A bank's operational risk committee reviews key risk indicators (KRIs) with amber threshold 4 and red threshold 7 failed settlements per week. Over four weeks, the counts are 3, 5, 6, and 8. Governance policy requires amber breaches to be reported to the business head and red breaches escalated to the executive risk committee. Which statement describes the correct escalation history?

Weeks 2 and 3, with 5 and 6 failures, are amber and go to the business head. Week 4, with 8 failures, exceeds the red threshold of 7 and goes to the executive risk committee. Week 1 is green.

  1. AWeek 2 amber to business head; week 3 amber; week 4 red to executive risk committee
  2. BWeek 2 and 3 amber to business head; week 4 red to executive risk committeeCorrect
  3. CWeek 2 red; week 3 red; week 4 red, all to the executive risk committee
  4. DOnly week 4 requires any escalation because it is the first breach of the amber level

Explanation

Week 1 (3) is below 4, so green. Weeks 2 (5) and 3 (6) exceed 4 but not 7, so amber and reported to the business head. Week 4 (8) exceeds 7, so red and escalated to the executive committee. Option A omits reporting for week 3 as a separate amber item, and option C wrongly treats amber as red.

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