Operational risk

EU legislation requires that institutions adequately manage and mitigate operational risk, which is defined as the risk of losses stemming from inadequate or failed internal processes, people and systems or from external events. Operational risk includes legal risks but excludes reputational risk and is embedded in all banking products and activities. It has always existed in banking, and non banking, organizations but it has acquired a greater relevance given the increased complexity and globalization of the financial system and the recent materialization of unprecedented extremely large losses. Through the publication of its guidelines and RTS on operational risk, the EBA aims at promoting and enhancing the effectiveness of operational risk management and supervision throughout the banking system.

Technical Standards, Guidelines & Recommendations

  • Regulatory Technical Standards on assessment methodologies for the use of AMAs for operational risk

    These Regulatory Technical Standards (RTS) assess the criteria that competent authorities need to consider before granting institutions permission to use advanced measurement approaches (AMA) for calculating their capital requirements for operational risk. These RTS will be part of the Single Rulebook aimed at enhancing regulatory harmonisation in the banking sector in the European Union.

    Status: Final draft adopted by the EBA and submitted to the European Commission

  • Regulatory Technical Standards (RTS) on the conditions for assessing the materiality of extensions and changes of internal approaches for credit, market and operational risk

    These Regulatory Technical Standards aim at harmonising the assessment of the materiality of extensions and changes to credit institutions’ internal approaches and to ensure that the approved internal approaches comply with the regulatory requirements. In particular, these RTS specify the conditions for assessing the materiality of extensions and changes to: the Internal Rating Based approach (IRB approach) for credit risk; the Advanced Measurement Approach (AMA) for operational risk and the Internal Models Approach (IMA) for market risk.

    Status: Adopted and published in the Official Journal

  • Guidelines on AMA extensions and changes

    These Guidelines aim at harmonising processes regarding the supervisory approval of such changes and to assist institutions using the Advanced Measurement Approach (AMA) to further develop their AMA models. The Guidelines provide institutions with guidance on how to communicate AMA extensions and changes to the competent authorities and on how to define internal policies for AMA changes in line with supervisory expectations. The Guidelines do not contain requirements regarding the modelling or risk management of institutions.

    Status: Final and translated into the EU official languages

  • Guidelines on the management of operational risk in market-related activities

    The Guidelines introduce principles and implementation measures for the identification, assessment, control and monitoring of operational risk in market-related activities. In particular, they aims to highlight supervisory expectations relating to specific arrangements, procedures, mechanisms and systems in trading areas that could prevent or mitigate operational risk events.

    Status: Final and translated into the EU official languages

  • Guidelines on operational risk mitigation techniques

    These Guidelines provide guidance on the recognition of risk transfer instruments within the AMA. The Guidelines are structured in three main sections addressing first the general conditions that should be fulfilled for the recognition of operational risk mitigation instruments, both insurance contracts and Other Risk Transferred Mechanisms (ORTM). The following two sections analyse the specific conditions for the use of insurance (eligibility of protection providers, characteristics of the products, haircuts for uncertainty of coverage) and for the use of ORTM.

    Status: Final and translated into the EU official languages

  • Guidelines on the implementation, validation and assessment of Advanced Measurement (AMA) and Internal Ratings Based (IRB) Approaches

    These Guidelines aim at providing guidance on what supervisors should take into account when assessing an application from an institution to use the Internal Ratings Based (IRB) or Advanced Measurement (AMA) approaches for regulatory purposes. The objective is to streamline the approval process, especially for cross-border groups, and to contribute to a level-playing field for institutions using the more advanced risk measurement approaches.

    Status: Final and translated into the EU official languages