Revised Operational Risk Capital Framework – Key Industry Views

Revised Operational Risk Capital Framework

KPMG in the UK summaries key industry views on the Basel Committee on Banking Standards (BCBS) revised consultation paper on operational risk capital.

Head of Banking Risk and Regulation

KPMG in the UK


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On 4 March 2016 the Basel Committee on Banking Standards (BCBS) released the long awaited revised consultation paper on operational risk capital. This proposed to scrap internal modelling (under the Advanced Measurement Approach, AMA) and revise all current approaches to, instead, measuring operational risk capital with one Standardized Measurement Approach (SMA). The BCBS has subsequently also published a consultation paper on revised Pillar 3 disclosure requirements, including amendments relating to operational risk. These include revising disclosures to meet the newly proposed SMA, additional disclosures of internal losses, and detailed information relating to the operational risk management framework.

Two weeks following the release of the consultation, KPMG in the UK held a roundtable discussion with senior operational risk representatives from across the industry to debate these new proposals. The roundtable was conducted under the Chatham House Rule. There were thirteen participants across a mix of G-SIBs, larger banks, and smaller UK-focused firms, with firms currently adopting The Standardized Approach (TSA) and the AMA. The discussions were wide ranging with lots of insights and views shared on the proposals themselves and more broadly regarding the future of operational risk management.

Top 5 Key Themes

  1. The new proposals do not capture the full picture in relation to operational risk: 92% of participants thought the proposal was not risk-sensitive enough on a standalone basis.
  2. Capital levels are likely to increase: 83% of participants anticipated their Pillar 1 capital requirements would increase due to the SMA, with a quarter of firms thinking the impact would be greater than a 70% rise.
  3. Incentivizing good operational risk management will be more challenging: 77% of participants were concerned that the SMA would not incentivize continual improvements in operational risk management.
  4. Further guidance is required in the detail of the proposals: 75% of participants thought their systems and processes would largely capture the data that would meet the new requirements, and their infrastructure would not require significant change.
  5. The Pillar 3 disclosure requirements are welcomed: 77% of participants thought the Pillar 3 changes will help improve transparency and comparability across banks.

Full survey details can be found here.

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KPMG’s Financial Services Regulatory Centers of Excellence can provide insights into the implications of the raft of regulatory change.

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