The European Banking Authority (EBA) launched today a consultation on draft Regulatory Technical Standards (RTS) assessing the criteria that competent authorities need to consider before granting institutions permission to use advanced measurement approaches (AMA) for calculating their capital requirements for operational risk. These RTS will be part of the Single Rulebook aimed at enhancing regulatory harmonisation in the banking sector in the European Union. The consultation runs until 12 September 2014.
These draft RTS detail the assessment methodology to be used by competent authorities for operational risk AMA models. In particular, they specify the qualitative and quantitative requirements which institutions are to meet before they can be granted permission to use AMA internal models to calculate their capital requirements to cover operational risk.
In addition, these RTS clarify the scope of operational risk, as well as the scope of operational risk loss, and specify common standards for the supervisory assessment of a bank’s operational risk governance with respect to the role and responsibilities of the operational risk management function and the reporting system.
These RTS also lay down criteria for the supervisory assessment of the key methodological components of the operational risk measurement system. They ensure this methodology effectively captures banks’ actual and potential operational risk, is reliable and robust in generating AMA regulatory capital requirements and is comparable across institutions.
Finally, these RTS establish criteria for the supervisory assessment of banks’ data quality and IT systems, requirements and terms for the ’use test‘ and terms and the scope of audit and internal validation of the AMA framework.
These RTS are part of the overall review of internal models undertaken by the EBA and represent another step forward in harmonising practices for the approval of internal models. Similar mandates exist in regard to credit and market risk internal models.
Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 12 September 2014.
All contributions received will be published following the close of the consultation, unless requested otherwise. A public hearing will take place at the EBA premises on 15 July 2014 from 15:00 to 17:00 hours UK time.
Legal basis and next steps
The proposed draft RTS have been developed on the basis of Regulation 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms (Capital Requirements Regulation - CRR), which sets out requirements relating to the assessment under which the competent authorities permit institutions to use Advanced Measurement Approaches (‘AMA‘) for own funds calculation and requirements for operational risk and.
These RTS will replace all the following CEBS guidelines that address AMA institutions: the ’Guidelines on the Implementation, Validation and Assessment of Advanced Measurement (AMA) and Internal Ratings Based (IRB) Approaches‘ (GL-10 CEBS, issued in 2006), limited to Section 4.3 and Annexes IV and V, the ’Compendium of Supplementary Guidelines on implementation issues of operational risk’ (GL-21 CEBS, issued in September 2009), limited to the individual guidance papers ’Guidelines on the use test for AMA institutions‘ and ’Guidelines on the allocation of the AMA capital‘, and the ’Guidelines on Operational Risk Mitigation Techniques‘ (GL-25 CEBS, issued on 22 December 2009).
The EBA must submit the draft RTS to the Commission by 31 December 2014.
- Associazione Bancaria Italiana
- BBVA Group
- British Bankers Association
- Chase Cooper Limited
- Czech Banking Association
- Deutsche Bank
- Divison Bank and Insurance, Austrian Federal Economic Chamber
- Dutch Banking Association
- EACB - European Association of Co-operative Banks
- EBA Banking Stakeholder Group
- EUROPEAN BANKING FEDERATION
- French Banking Federation
- German Banking Industry Committee
- Hungarian Banking Association
- MONTE DEI PASCHI DI SIENA
- Morgan Stanley
- Operational Riskdata eXchange (ORX)
- Polish Bank Association
- Unicredit Group