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Key risk indicators (KRIs)
Key risk indicators are used by financial firms to measure their exposure to a given risk at a particular time. By comparing an appropriate set of key risk indicators with internal limits and thresholds, banks can determine whether their operational risk exposures are within their risk appetite.
Firms normally maintain anywhere from several hundred to a few thousand KRIs. Each indicator helps a firm quantify a specific risk. Measuring risks against KRIs can give firms an aggregate gauge of their potential exposure to operational failures.
KRIs form part of a firm’s risk identification process. Typically, institutions also develop risk and control self-assessment (RCSA) programmes as well as risk appetite frameworks and conduct standards to help them define their risk preferences and codify their risk culture.