Comprehensive and Detailed In-Depth Explanation:

Risk appetite matures as an operational risk program evolves because management gains clarity on acceptable loss levels through data collection, scenario analysis, and control assessments under Basel II’s AMA. Option C reflects this learning process. Option A (comparison with peers) is secondary, Option B (lowering appetite) isn’t a universal outcome, and Option D (increased appetite from controls) assumes a specific direction not guaranteed by maturity.

Exact Extract from Official Source:

BCBS, "Basel II: International Convergence of Capital Measurement and Capital Standards," June 2006, para. 646: "As operational risk management matures, banks develop a clearer understanding of their risk appetite, reflecting the acceptable level of losses based on historical data and risk mitigation capabilities."

GARP FRR Study Notes, Operational Risk Section: "A maturing operational risk program enhances management’s ability to define risk appetite by quantifying tolerable loss levels through improved risk assessment processes."