EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023. The EU authorities expect to publish the final Banking Package in the form of amendments to the Capital Requirements Directive (CRD: 2013/36/EU) and Regulation (CRR: 2013/575) in the Official Journal of the European Union in 2024. As per its roadmap, EBA expects to finalize the most significant components of its mandates ahead of the application date of January 01, 2025. Earlier this month, EBA had proposed standards for residual risk add-on hedges under market risk rules as well as a technical package under reporting framework 3.4. Now, very recently, EBA has proposed operational risk requirements under Pillar 3 and the business indicator (BI) framework for operational risk as further steps toward implementing the final Basel III reforms.
EBA launched, on February 20, 2024, a consultation on two sets of draft regulatory technical standards (RTS) and one set of implementing technical standard (ITS) aiming to clarify the composition of the new BI at the heart of the operational risk capital requirements calculation. The consultation period ends on May 21, 2024. The draft RTS on the specification of the BI items provides a list of typical items developed for each component of the BI, in line with the work provided in the EBA Policy Advice on the Basel III Reform; they also include subsequent amendments to accounting standards and clarify the elements that are to be excluded from the BI. The draft ITS map, where possible, the typical items of the BI to their corresponding reporting cells in FINREP. Finally, the draft RTS on BI adjustments require institutions to use the actual three-year historical data or a limited number of alternative methodologies following an operation. In the context of disposals, the draft RTS specify the conditions under which a permission may be granted to exclude BI items related to disposed entities or activities. In parallel with this consultation, EBA will conduct a quantitative analysis based on data requested as part of the Basel III monitoring quantitative impact study (QIS) to assess the impact of the proposed amendments as well as to inform the calibration of certain aspects of the new framework. EBA will consider the feedback received and the QIS results in the finalization of the draft technical standards.
In parallel, EBA is also consulting, until April 30, 2024, on two draft ITS on Pillar 3 disclosures and supervisory reporting, to allow supervisors to monitor institutions’ compliance with the Basel III framework for operational risk. These amending ITS implement the new Capital Requirements Regulation (CRR3) reporting and disclosure requirements linked to the introduction of the revised framework for the calculation of own funds requirements for operational risk. The consultations are part of phase 1 in the implementation of the EU Banking Package, which also includes the two consultations published in December 2023 that cover the disclosure and reporting requirements for output floor, credit risk (also IP Losses), credit valuation adjustment (CVA), market risk, and leverage ratio. EBA submission of the final updated ITS to the European Commission, for the adoption process, is expected to take place at the beginning of the third quarter of 2024. The EBA will also develop the data-point model (DPM), XBRL taxonomy, and validation rules based on the final draft ITS. The application date of these ITS will be January 01, 2025 and the first reference date will be March 31, 2025, in line with the date of application of the CRR3.
Visit the Moody’s Analytics microsite for Banking Cloud Solutions to find out how our solutions help banks get up-to-date with the latest capital adequacy requirements and address the regulatory reporting requirements.
Related Links
- Proposed Disclosure and Reporting Rules
- Proposed Operational Risk BI Framework
- Technical Package for Reporting Framework 3.4
- Consultation on Residual Risk Under FRTB
- EC on Basel III Banking Package
- EBA Roadmap on Basel III Banking Package
Keywords: Europe, EU, Banking, Basel, Final Basel III Reforms, Reporting, Operational Risk, Pillar 3, Regulatory Capital, CRR, CRD, EC, EBA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
BIS and Central Banks Experiment with GenAI to Assess Climate RisksRelated Articles
OSFI Issues Phase2 Consultation on Climate Scenario Exercise for Banks
The Office of the Superintendent of Financial Institutions (OSFI) recently announced a consultation on the second phase of the Standardized Climate Scenario Exercise (SCSE) for banks and other financial institutions it regulates in Canada.
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
