Response to consultation on Regulatory Technical Standards on operational risk loss
Question 1: Do you think that the granularity of and the distinction between the different Level 2 categories is clear enough? If not, please provide a rationale.
A specified objective for the RTS is to “maintain alignment with the current practices of most institutions, built on level 1 event types and level 2 categories, which retain their quality of being mutually exclusive and collectively exhaustive”. However, my analysis has found causal factors and control failures have been introduced as stand-alone level 2 categories, which will by definition present challenges in meeting this defined objective.
A number of good enhancements have been made the taxonomy. However, there are a few recommendations:
- Remove any EBA2 categories that are either causal factors or control failures. This does not mean these risks are not important. Rather they should be captured through a different taxonomy.
- Simplify and reduce the number of proposed EBA2 categories, but merging some and using flags if it is important to supervisors to capture specific information on those previously identified categories, to identify losses falling in these categories.
Question 2: Do you perceive the attribute “greenwashing risk” as an operational risk or as a reputational risk event? Please elaborate.
Depends on the outcome. If an event results in direct financial, compensatory, or legal costs, then it is likely to be operational risk in nature.
If the consequence of greenwashing is purely reputational in nature, and does not result in direct financial, compensatory or legal costs, then it is unlikely to be asn operational risk.
Question 3: To which Level 1 event types and/or Level 2 categories would you map greenwashing losses? Please provide a rationale.
Depends on the outcome - operational risk loss or reputational risk. If it is an operational risk loss, then it should be mapped to level 1, level 2 and level 3.
Question 4: Is “Environmental – transition risk” an operational risk event? If yes, to which Level 2 categories should it be mapped? Please provide a rationale.
transition risk is typically more of an investment or credit risk nature.
Question 5: Which of these attributes do you think would be the most difficult to identify? Please elaborate.
Not answered
Question 6: Do you agree with the inclusion of the attribute “Large loss event”? If not, please elaborate.
yes
Question 7: Do you think that the granularity the proposed list of attributes is clear enough? Would you suggest any additional relevant attribute? Please elaborate your rationale.
no comment
Question 8: Would it be disproportionate to also map the three years preceding the entry into force of these Draft RTS to Level 2 categories? If yes, what would be the main challenges?
Not answered
Question 9: Is the length of the waivers (three years and one year) for institutions that, post merger or acquisition fall into the EUR 750 million – EUR 1 billion band for the business indicator, sufficient to set up the calculation of the operational risk loss following a merger or acquisition? If not, please provide a rationale.
yes
Question 10: Are there other cases where it should be considered to be unduly burdensome for institutions to calculate the annual operational risk loss?
No
Question 11: Which of the provisions of Article 317(7), as developed by the draft RTS on the development of the risk taxonomy, and Article 318 of the CRR would be most difficult to implement after a merger or acquisition for the reporting entity? Please elaborate.
not answered
Question 12: In your experience, would the provisions of this article apply to most mergers and acquisitions, or would data usually be promptly implemented in the loss data set of the reporting institution?
not answered
Question 13: Are there other adjustments that should be considered in these draft RTS? If yes, please elaborate.
Further refinements to the proposed level 2 categories would be advised.