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FRM Part I · FRM Exam Part I · Operational Risk

A bank's operational risk team tracks a key risk indicator (KRI) for failed trade settlements with an amber threshold of 40 per month and a red threshold of 60 per month. Monthly counts were 35, 44, 52, 61. Which conclusion and action is most consistent with sound KRI governance?

The counts moved from green to amber to red, with 61 exceeding the 60 threshold, so the deteriorating indicator should be escalated to senior management under the framework and remediation tracked. Raising thresholds to restore green would defeat the purpose of the indicator.

  1. AThe KRI is only breached in the first month, so no action is needed
  2. BThe indicator is in a deteriorating trend and is now red, so it should be escalated to senior management per the framework, with remediation trackedCorrect
  3. CThresholds should be raised to 70 so the indicator returns to green
  4. DOnly the amber breach requires escalation; red breaches are reported annually

Explanation

Counts rose from green (35) to amber (44, 52) to red (61, above 60). A trend toward the limit and a red breach require escalation under predefined triggers and tracked remediation. Raising thresholds to avoid breaches undermines the framework, and red breaches need more urgent, not slower, reporting.

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