CP10 (Full Document) - European Banking Authority

432. Institutions should have systems and procedures that monitor in a
timely and appropriate manner the consistency of the partial use
combinations and the significance, materiality, and time­frame issues
of the roll out plan.
433. Institutions should notify their competent supervisors in a timely
fashion of any relevant changes in the organisational or business
environment, due to either normal or exceptional circumstances (for
example, a major acquisition or disposal or a major change in
shareholders, management, or organisation), that could significantly
impact on the institutions’ initial partial­use or roll­out plans. The
institutions should discuss with their supervisor or supervisors any
changes to the roll out plan that may be needed.
434. A merger or an acquisition is considered as an important event that
is likely to call for modifying the institution’s partial use and roll­out
policies. Two situations can be distinguished: first, where an AMA
institution acquires a non­AMA institution, and second, where a non­
AMA institution acquires an AMA institution. In the first case, the
AMA institution may be asked to submit a new Article 129 application
with a new partial use and roll­out policy for the supervisor’s
analysis, or it may be asked to submit a plan for bringing the entire
institution into compliance with the CRD. The second case is more
difficult, since the acquiring institution does not have AMA permission
and some requirements, such as senior management understanding,
may not be met. The institution would normally be asked to make a
new Article 129 application.
4.3.2. Use test
435. Annex X, Part 3, Paragraph 2 requires the institution's internal
operational risk measurement system to be closely integrated into its
day­to­day risk management process (Use test). The use test for the
AMA is less elaborated in the CRD than the use test for the IRB
approach.
436. The operational risk measurement system of an institution must
have certain key elements. These elements must include the use of
internal data, external data, scenario analysis and factors reflecting
the business environment and internal control systems (Annex X,
Part 3, Paragraph 9).
437. The following section establishes a framework of four broad
principles which industry would have to consider, at a minimum, in
order to satisfy the use test. For each principle typical examples of
actions that could be undertaken are also provided. The examples
illustrate ways to comply with the principles, and are not meant to
be exhaustive.
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