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Compensation and penalty payments from legal disputes due to incorrect advice recently exceeded the limit of €10 billion per case. The losses incurred and provisions for such cases already exceed the write-off amounts for loan defaults in many banks – and threaten to put many a financial institution in considerable distress.

The regulators have recognised this problem and are focusing on a comprehensive restructuring of the operational risk requirements. Extensive changes to all three pillars of Basel II are currently pending:

Pillar I

The new standard approach replaces all existing capital approaches and is a break with the previous differentiated approach. The model-based advanced measurement approach (AMA) will no longer be permitted in the future.

Pillar II

The EBA SREP guidelines include an explicit assessment of the operational risk framework. This involves an assessment of the operational risk strategy and propensity; the organisational framework; the policies and processes; risk identification, assessment, monitoring and reporting; business continuity processes; and the internal control system.

Pillar III

The Basel Committee is planning, among other things, the disclosure of loss data used for capital adequacy purposes in Pillar III, which would mean significantly more transparency in this area compared to the status quo.

The further increase in losses as well as the impulses from banking supervision should prompt financial institutions to critically examine their operational risk framework and develop it further in a targeted manner. Fields of action can be, for example, the improvement of operational risk management, an optimisation of operational risk governance, the expansion of internal loss data collection, the modification of the qualitative methods of the operational risk framework as well as the adjustment of economic capital models. We can provide you with comprehensive support in all subject areas.

Our operational risk team has gained extensive experience in numerous projects and has established pragmatic solutions for our customers. We would be happy to help you not only to comply with the changed regulatory framework, but also to achieve significant business benefits through state-of-the-art operational risk management.