Response to consultation on Technical standards on the new Business Indicator framework for operational risk
Question 1: What are your views with regards to the proposal for the ILDC component? Please explain and provide arguments for your answer.
NA
Question 2: What are your views with regards to the proposal for the Services component? Please explain and provide arguments for your answer.
QUESTION regarding COREP reporting for C 16.03 position 0040.
C 16.03 0040 is summed up in C16.03 0060. C16.03 0060 flows into C16.02 0310 which can become part of the service component of the Business Indicator
C 16.03 - Position 0040 (Provisions or (-) reversal of provisions due to operational risk events)
In case an institution expects certain operational risk event to happen, which it is unable to prevent, it can book a provision amount (further in text: “general provisions”) for estimated cost of such an event, before the event happens. When the event happens, the “general provision” is released, and a “specific provision” is booked for the exact cost of the operational risk event.
If a bank books “general provisions” for an event that has not yet happened, but the bank expects to happen should those provision be treated as provisions due to operational risk events and thus included in position 0040 C.16.03 reporting sheet?
In our view following the definition of operational risk where ‘operational risk event’ means any event linked to an operational risk which generates a loss or multiple losses (Article 311a of amending Regulation (EU) No 575/2013), abovementioned “general provisions” should not be considered as ‘operational risk event’ since event has not occurred yet. These “general provisions” are not pending losses in accordance with the given definition (Article 318 (2)(d) of amending Regulation (EU) No 575/2013), since they are already booked on P&L.
Following this argumentation, we would not consider these “general provisions” to be reported in position 0040 in C16.03. However, we would report (in position 0040 in C16.03) the specific (individual) provisions for events that already happened.
Reporting a specific provision for operational risk events in position 0040 will over the time consume previously created “general provisions” which are then released (transferred from general to specifics provisions). With this reporting approach, we find ourselves to be fully in line with operational risk event definition.
Question 3: What are your views with regards to the proposal for the Financial component? To which extent are you carrying out operations or making accounting choices as referred to under paragraph 2, point a) of Article 9 of this draft RTS? Are you carrying out operations or making accounting choices, other than those specified under paragraph 2, point a) of Article 9 of this draft RTS, that could justify the use of the PBA? Please explain and provide arguments for your answer.
NA
Question 4: What are your views with regards to the proposal for the specification of the items to be excluded from the BI? Please explain and provide arguments for your answer.
NA
Question 5: What are your views with regards to the proposed mapping of the BI items to the FINREP cells? Please explain and provide arguments for your answer.
NA
Question 6: What are your views with regards to consider the financial statements used for the final valuation as the only reference for the acquisition of activities under the baseline approach (i.e. full historical data)? Please explain and provide arguments for your answer.
The split between trading book and banking book means a higher effort to be able to fill in positions from FINREP F02.00 because in FINREP the amounts of trading and banking book are reported in one sum and must be splitted in C 16.02 Template. This means increased effort to provide the data, which is disproportionate to the resulting effect - especially for banks with a small trading book.
Question 7: What are your views with regards to the proposed three alternative calculation approaches instead of a unique alternative approach to be defined? Please explain and provide arguments for your answer.
NA
Question 8: What are your views with regards to not providing any alternative method but adjustment to the effective perimeter of the disposal? Please explain and provide arguments for your answer.
NA
Question 9: What are your views with regards to the inclusion of a threshold? Please explain and provide arguments for your answer, as well, if applicable, further evidence on situations where BI adjustments as set out under articles 1 and 2 would not be feasible or deemed excessively cumbersome and identify potential consequences on the dynamics of the European financial markets.
NA
Question 10: What are your views with regards to the basis for the calculation of the threshold? Please explain and provide arguments for your answer.
NA
Question 11: What are your views with regards to the level you consider would be appropriate for the threshold? Please explain and provide arguments for your answer.
NA