The Basel Committee is proposing changes to the operational risk capital framework. It proposes a new standardised measurement approach (SMA) that will:

  • replace the three existing standardised approaches for calculating operational risk capital and the Advanced Measurement Approach (AMA), which should simplify the current framework;
  • combine a financial statement-based measure of operational risk – the “Business Indicator” (BI) – with an individual firm’s past operational losses, which results in a risk-sensitive framework, but still with consistency in the calculation of operational risk capital requirements across banks and jurisdictions; and
  • allow use of an internal model-based approach for measuring operational risk. The Basel Committee says modelling of operational risk for regulatory capital purposes is unduly complex and the AMA has resulted in excessive variability in risk-weighted assets and insufficient levels of capital for some banks.

Consultation closes on 3 June. (Source: Basel Committee publishes operational risk framework proposals)