COREP template C 17.00 – OPERATIONAL RISK: GROSS LOSSES BY BUSINESS LINES AND EVENT TYPES IN THE LAST YEAR (OPR Details) summarises the information on the gross losses registered by an institution in the last year according to event types and business lines, based on the first accounting date of the loss.
What we would like to clarify, is the treatment of incidents that span more than one year, and consequently get recorded in the books of the institution in parts for several years. The question is whether the amount included in this table should be the incremental amount (i.e. the amount that was recorded for an incident only in the last 12 months from the report date, and which could mean positive amounts, due to possible reversals of previous provisions) or if it should be the sum of the amounts (i.e. cumulative amount) recorded for that incident over all the years, including the latest amount which was recorded in the last 12 months.
Please find here three examples illustrating the above question, for which we would like a clarification:
There are cases where an incident is identified in one year and a loss is booked, however the case might only close in the following years and the final settlement (e.g. through court) might be different than the amount originally booked. What should be reported in the year when the case is closed? The incremental amount (which could even be a reversal of a recorded loss) or the full amount for the case?
The approach is to record incremental amounts in order to avoid double counting and to get a picture of the institution’s losses across several years. In this regard, it needs to be noted that, according to point 129 of the Annex II of the Regulation (EU) No. 680/2014 (ITS on Supervisory Reporting) as amended by Regulation (EU) No. 2015/1278, the report submitted for the June reference date reflects the period from 1 January to 30 June; the report submitted for the year-end reference date reflects the period from 1 January to 31 December (see also Q&A 2013_285).
In line with points 124 and 125 of Annex II of the ITS on Supervisory Reporting, assuming the risk event has first been accounted for in an expired reporting period, only the increment (independent whether it concerns a realised loss or an estimated loss in the form of a provision or the like) has to be reported as part of the “total loss amount” and if applicable as the “maximum single loss” and / or as part of “the sum of the five largest losses”. The event itself does not count for the “number of events” any more.
Assuming the risk event has first been accounted for in an expired reporting period, the negative adjustment has to be deducted from the “total loss amount”. As the negative adjustment in itself is no loss, it can neither be deducted from the “maximum single loss” nor can it be part of “the sum of the five largest losses”. The event itself does not count for the “number of events” any more.
The loss should be reported with its full amount (i.e. the initial loss plus any adjustment of the loss amount made since then until the current reporting period) for the reporting period when it first exceeds the data collection threshold. It is also for this reporting period that the event has to be counted.