Guidelines on operational risk mitigation techniques

22 December 2009

The Committee of European Banking Supervisors (CEBS) today publishes its guidelines on operational risk mitigation techniques following a three-month public consultation period and a public hearing. These guidelines, which build on the provisions of the Capital Requirements Directive (CRD) and CEBS's Guidelines on the Implementation, Validation and Assessment of AMA and IRB Approaches (Implementation Guidelines – GL10) provide supervisory expectations and clarification on the recognition of risk transfer instruments within the AMA.

The paper is 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.

Due to the relatively brief experience of both institutions and supervisors with ORTM, only a limited number of specific ORTM guidelines have been issued at this stage. However, CEBS will continue its dialogue with the industry on the development of ORTM and will closely monitor their use as instruments for operational risk mitigation, aiming to supplement and/or review the current guidelines when appropriate.

In developing these guidelines, CEBS benefited from views gathered from market participants. Input was provided in the industry's responses to the public consultation (CP25) published in April 2009 and in a public hearing organised in July 2009. CEBS has considered the feedback received and has revised its initial proposals in order to address the main issues raised by market participants. It is envisaged that the guidelines would be implemented by 30 June 2010.

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