CP10 (Full Document) - European Banking Authority

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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. Page 102 of 123
Principles and examples 1. The purpose and use of the operational risk measurement system should not be limited to regulatory purposes. Evidence of meeting the use test could include, but is not limited to: · Demonstrating that the risk measurement system is used to manage operational risk exposures across different business lines within the organisation structure. · Demonstrating how inputs, estimations, predictions, or outputs from the risk measurement system are used in the decisionmaking process, for example as an element in strategic and tactical decisionmaking. 2. The operational risk measurement system should evolve continually as the institution gains experience with risk management techniques and solutions. Evidence of meeting the use test could include, but is not limited to: · Demonstrating how the institution ensures that the nature and balance of inputs into the risk measurement system are relevant and fully reflect the nature of the business. · Demonstrating how the risk measurement system becomes more responsive and robust. 3. The operationalrisk framework should support and enhance the management of operational risk within the organisation. Evidence of meeting the use test could include, but is not limited to: · Demonstrating how decisions for improving processes and controls are made. · Demonstrating that operational management objectives and activities are communicated within the organisation. 4. The use of an operational risk measurement system should provide benefits to the organisation in the management and control of operational risk. Evidence of meeting the use test could include, but is not limited to: · Demonstrating that management has considered action on its receipt of information from the riskmeasurement system. · Demonstrating that the operational risk measurement system increases transparency, risk awareness, and operationalrisk management expertise, and creates incentives to improve the management of operational risk throughout the organisation. Page 103 of 123
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CEBS CP 10 11 July 2005 Guidelines
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ANNEXES ...........................
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to use these approaches. 6. The gui
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IRB approach can be given only if t
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approaches for regulatory purposes
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purposes, when the group has submit
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efficient running of the process, u
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and/or 105 of the CRD, subject to t
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58. Institutions intending to move
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translated, supervisors will organi
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76. The issues that supervisors are
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holding company, the competent auth
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· A new approval process shall not
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· Institutions may not be ready to
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2. Asking institutions to notify su
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116. ‘Immaterial’ should refer
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128. The EU Council has proposed th
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should start with inputs, and those
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to be only broadly compliant with t
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institutions to be able to identify
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differentiated if their loss rates
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payments are originating from the s
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any of its subsidiaries in full, wi
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197. As a general rule, the rating
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· Their discounting method results
Page 51 and 52: grades. In this case, all of the re
Page 53 and 54: of challenges, including choosing t
Page 55 and 56: 228. In principle, supervisors do n
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Page 63 and 64: investigating the potential drivers
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Page 67 and 68: terms) the proof of consistency wit
Page 69 and 70: 302. The information used in credit
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Page 81 and 82: · Institutions must be able to bri
Page 83 and 84: Benchmarking the outputs of interna
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Page 87 and 88: systems” (Annex VII, Part 4, Para
Page 89 and 90: · Examining reports from Internal
Page 91 and 92: organisational point of view (e.g.,
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Page 105 and 106: etween systems, recording of data t
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