Question

A retail bank's board has set a risk appetite statement that limits acceptable operational losses to a low level relative to net revenue. Management defines a tolerance threshold allowing monthly fraud losses to fluctuate up to 15% above the target before escalation is required. In one month, fraud losses spike to 12% above target due to a seasonal promotion, then return to normal the following month. The CRO is deciding how to respond. What is the MOST appropriate action?

Accepted Answer

Continue monitoring without formal escalation, as the fluctuation remained within the defined tolerance threshold

Answer

Immediately escalate to the board and recommend suspending the promotion, since any deviation from the target signals appetite has been breached

Answer

Revise the risk appetite statement upward to permanently accommodate seasonal promotional losses

Answer

Reallocate risk capacity from other business units to offset the temporary increase in fraud losses