1.QUALIFYING CRITERIAU.K.
1.To be eligible for an Advanced Measurement Approach, credit institutions must satisfy the competent authorities that they meet the qualifying criteria below, in addition to the general risk management standards in Article 22 and Annex V.U.K.
1.1.Qualitative StandardsU.K.
2.The credit institution's internal operational risk measurement system shall be closely integrated into its day-to-day risk management processes.U.K.
3.The credit institution must have an independent risk management function for operational risk.U.K.
4.There must be regular reporting of operational risk exposures and loss experience. The credit institution shall have procedures for taking appropriate corrective action.U.K.
5.The credit institution's risk management system must be well documented. The credit institution shall have routines in place for ensuring compliance and policies for the treatment of non-compliance.U.K.
6.The operational risk management processes and measurement systems shall be subject to regular reviews performed by internal and/or external auditors.U.K.
7.The validation of the operational risk measurement system by the competent authorities shall include the following elements:U.K.
(a)
verifying that the internal validation processes are operating in a satisfactory manner;
(b)
making sure that data flows and processes associated with the risk measurement system are transparent and accessible.
1.2.Quantitative StandardsU.K.
1.2.1.ProcessU.K.
8.Credit institutions shall calculate their capital requirement as comprising both expected loss and unexpected loss, unless they can demonstrate that expected loss is adequately captured in their internal business practices. The operational risk measure must capture potentially severe tail events, achieving a soundness standard comparable to a 99,9 % confidence interval over a one year period.U.K.
9.The operational risk measurement system of a credit institution must have certain key elements to meet the soundness standard set out in point 8. These elements must include the use of internal data, external data, scenario analysis and factors reflecting the business environment and internal control systems as set out in points 13 to 24. A credit institution needs to have a well documented approach for weighting the use of these four elements in its overall operational risk measurement system.U.K.
10.The risk measurement system shall capture the major drivers of risk affecting the shape of the tail of the loss estimates.U.K.
11.Correlations in operational risk losses across individual operational risk estimates may be recognised only if credit institutions can demonstrate to the satisfaction of the competent authorities that their systems for measuring correlations are sound, implemented with integrity, and take into account the uncertainty surrounding any such correlation estimates, particularly in periods of stress. The credit institution must validate its correlation assumptions using appropriate quantitative and qualitative techniques.U.K.
12.The risk measurement system shall be internally consistent and shall avoid the multiple counting of qualitative assessments or risk mitigation techniques recognised in other areas of the capital adequacy framework.U.K.
1.2.2.Internal dataU.K.
13.Internally generated operational risk measures shall be based on a minimum historical observation period of five years. When a credit institution first moves to an Advanced Measurement Approach, a three-year historical observation period is acceptable.U.K.
[F114. Credit institutions shall be able to map their historical internal loss data into the business lines defined in Part 2 and into the event types defined in Part 5, and to provide these data to competent authorities upon request. Loss events which affect the entire institution may be allocated to an additional business line ‘ corporate items ’ due to exceptional circumstances. There must be documented, objective criteria for allocating losses to the specified business lines and event types. The operational risk losses that are related to credit risk and have historically been included in the internal credit risk databases must be recorded in the operational risk databases and be separately identified. Such losses shall not be subject to the operational risk charge, as long as they continue to be treated as credit risk for the purposes of calculating minimum capital requirements. Operational risk losses that are related to market risks shall be included in the scope of the capital requirement for operational risk.] U.K.
Textual Amendments