verifying that the internal validation processes are operating in a satisfactory manner;
making sure that data flows and processes associated with the risk measurement system are transparent and accessible.
the insurance policy must have an initial term of no less than one year. For policies with a residual term of less than one year, the credit institution must make appropriate haircuts reflecting the declining residual term of the policy, up to a full 100 % haircut for policies with a residual term of 90 days or less;
the insurance policy has a minimum notice period for cancellation of the contract of 90 days;
the insurance policy has no exclusions or limitations triggered by supervisory actions or, in the case of a failed credit institution, that preclude the credit institution receiver or liquidator, from recovering for damages suffered or expenses incurred by the credit institution, except in respect of events occurring after the initiation of receivership or liquidation proceedings in respect of the credit institution; provided that the insurance policy may exclude any fine, penalty, or punitive damages resulting from actions by the competent authorities;
the risk mitigation calculations must reflect the insurance coverage in a manner that is transparent in its relationship to, and consistent with, the actual likelihood and impact of loss used in the overall determination of operational risk capital;
the insurance is provided by a third party entity. In the case of insurance through captives and affiliates, the exposure has to be laid off to an independent third party entity, for example through re-insurance, that meets the eligibility criteria; and
the framework for recognising insurance is well reasoned and documented.
the residual term of an insurance policy, where less than one year, as noted above;
a policy's cancellation terms, where less than one year; and
the uncertainty of payment as well as mismatches in coverage of insurance policies.