EUROPEAN UNION: EBA Publishes Final Draft Standards on Assessment Methodologies to use Advanced Measurement Approaches for Operational Risk

Monday June 8 2015

The European Banking Authority (EBA) has published its final draft Regulatory Technical Standards (RTS), which specify the criteria that Competent Authorities need to take into account before granting institutions permission to use advanced measurement approaches (AMA) for calculating their capital requirements for operational risk. These RTS are part of the overall review of internal models undertaken by the EBA and are part of the Authority`s efforts to harmonise practices for the approval of internal models in the area of credit, market and operational risk models across the EU banking sector. These RTS will be part of the Single Rulebook aimed at enhancing regulatory harmonisation in the banking sector across the European Union.

The RTS also lay down criteria for the supervisory assessment of the key methodological components of the operational risk measurement system. They ensure this methodology effectively captures banks` actual and potential operational risk, is reliable and robust in generating AMA regulatory capital requirements and is comparable across institutions.

In addition, these RTS provide common standards for the supervisory assessment of a bank`s operational risk governance with respect to the role and responsibilities of the operational risk management function and the reporting system and establish criteria for the supervisory assessment of banks` data quality and IT systems, the requirements and terms for an institution to use its AMA in the running of its business (‘use test`) and the terms and the scope of audit and internal validation of the AMA framework.

Click on the link above for further details.