Single Rulebook Q&A

Question ID: 2018_3772
Legal act : Regulation (EU) No 575/2013 (CRR) as amended
Topic : Operational risk
Article: 315
Paragraph: 4
Subparagraph:
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
Article/Paragraph : n/a
Type of submitter: Credit institution
Subject matter : Calculation of 3 year indicator at consolidated level where figures for individual entities are negative
Question:

When applying prudential consolidation, does Article 315(4) CRR apply to the indicator on a consolidated level or at entity level?

Background on the question:

In the below example:

 

Year 1

Year 2

Year 3

Parent

8

10

11

Sub 1

5

5

-2

Sub 2

1

3

4

Total

14

18

13

 

 

 

 

 

 

 

 

Would the Year 3 negative result of subsidiary 1 be excluded from the calculation of the three year average? In this case, if sub's 1 negative figure was excluded the total figure at group level would be 15.

Alternatively, would the Year 3 Total figure of 13 (on a consolidated basis) be used for the calculation of the three year average?

Date of submission: 21/03/2018
Published as Final Q&A: 23/11/2018
EBA answer:

As stated in Articles 315(1) and (4) of Regulation (EU) No 575/2013 (CRR), “Under the Basic Indicator Approach, the own funds requirement for operational risk is equal to 15 % of the average over three years of the relevant indicator as set out in Article 316.” and “Where for any given observation, the relevant indicator is negative or equal to zero, institutions shall not take into account this figure in the calculation of the average over three years.”.

In the minimum regulatory capital calculation, it has to be differentiated between the calculation on legal entity level and the calculation on group level. Article 315(4) CRR is applicable at consolidated level as well as at entity level. This means that for the calculation of capital requirements the different levels are not to be mixed and the capital requirement of each subsidiary or the group should be calculated only based on the audited income statement data at the subsidiary level, and the capital requirement of the group should be calculated only based on the audited income statement data at consolidated level.

Therefore, if at consolidated level, the “negative” years of solo entities affect the income statement by reducing the total figure, these negative years have to be included (that is, deducted) within the total figure.

If the resulting consolidated total figure of one specific year is equal to zero or negative, the non-positive consolidated figure of this specific year should not be used (not even any “positive” figure of any solo entity for this specific year) neither in the numerator nor in the denominator of the capital requirements calculation at consolidated level.

Consequently, in the very simplified example given, at entity level, Year 3 of Sub 1 cannot be considered in the calculation of the 3 year indicator for Sub 1 (in this case only Year 1 and Year 2 have to be considered and their sum has to be divided by 2 instead of 3). However, in the same example, at consolidated level, Year 3 of Sub 1 has to be considered for the calculation of the consolidated operational risk requirements.

Status: Final Q&A
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