CP10 (Full Document) - European Banking Authority

426. The calculation of the capital charge for operational risk under the
BIA, TSA or ASA According to Annex X, Part 2, Paragraph 1 is based
on the three­year average of the relevant indicator. The three­year
average, while designed to reduce the volatility of the capital charge,
may, in exceptional circumstances, such as recent acquisitions or
disposals of entities or activities, lead to an over­ or underestimation
of operational risk.
427. If an institution can satisfy its competent authority that – due to
exceptional circumstances such as a major sale – using a three­year
average to calculating the relevant indicator would lead to a major
overestimation of its current operational risk under Pillar I, the
competent authority can allow the institutions to use a different
calculation method.
4.3. AMA
4.3.1. Roll­out
428. The roll­out issues for operational risk (Annex X, Part 4) are
significantly different from those for credit risk. Annex X, Part 4,
Section 1 sets out the roll­out conditions for institutions that apply
the most advanced technique (AMA), and Annex X, Part 4, Section 2
sets out the conditions for institutions that apply the less
sophisticated approaches (BIA/TSA/ASA). When applying for
permission to use the AMA, institutions should be expected to fulfil
not only the main requirements of the CRD ( Annex X, Part 4,
Paragraph 1), but also two additional conditions (of Annex X, Part 4
Paragraph 2), which are discretions for the national supervisory
authorities:
a) On the date of implementation of an AMA, a significant part of the
institution’s operational risks has to be captured by the AMA; and
b) The institution makes a commitment to roll out the AMA across a
material part of its operations within a time schedule agreed with
its competent authorities.
429. Supervisory authorities are expected to apply these discretionary
conditions in most cases. There could be cases where these
additional conditions might not be imposed on institutions, but these
should be exceptional. Once the two discretionary conditions are
imposed, the significance of the operational risks captured by AMA
and the materiality of the part of the operations captured by AMA will
need to be assessed. The methods used to conduct this assessment
can be quantitative, qualitative, or a combination of the two.
Regardless of the methods used by competent authorities, all
business lines and operations should be captured by one of the
operational risk methodologies.
430. The roll­out policy should address at least two different issues: the
time horizon and the roll­out sequence.
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