Principles for home-host supervisory cooperation and allocation mechanisms in the context of Advanced Measurement Approaches (AMA) - consultative document

February 2007

This paper sets out principles related to two important topics in the implementation of the Advanced Measurement Approaches (AMA) for operational risk under Basel II. The first set of principles is intended to be a supplement to the paper Home-host information sharing for effective Basel II implementation (Home-host paper) as the principles focus specifically on supervisory cooperation in the context of banks implementing an AMA. The second set of principles builds on the paper Principles for the home-host recognition of AMA operational risk capital (Hybrid AMA paper) and specifically addresses allocation mechanisms developed as part of a hybrid AMA. 

The primary objectives of the paper are:

  • To clarify the key elements of supervisory cooperation with respect to the implementation of AMA and establish a framework of principles to facilitate information sharing in the assessment and approval of AMA methodologies; and,
  • To establish a set of principles to promote the development and assessment of allocation mechanisms incorporated in a hybrid AMA.

The principles set out in this paper do not supersede the general principles described in the paper High-level principles for the cross-border implementation of the New Accord but rather provide further elaboration of these principles in an operational risk context. Also, to the extent that this paper refers to operational risk capital requirements, such references are limited to the Pillar 1 capital charge only.

The Operational Risk Subgroup of the Basel Committee's Accord Implementation Group (AIGOR) anticipates that the principles set out in this paper will enhance home-host cooperation and information sharing among supervisors with respect to the approval and ongoing assessment of AMA methodologies, particularly as they relate to the hybrid AMA. In this regard, the AIGOR would emphasise the need for banks interested in implementing the hybrid AMA to work with relevant home and host supervisors to develop allocation mechanisms that appropriately reflect the operational risk profiles of all relevant subsidiaries and meet any other requirements of those supervisors.

Comments on this consultative document are welcome. They should be submitted to the Secretariat of the Basel Committee on Banking Supervision, Bank for International Settlements, Postfach, CH-4002 Basel, Switzerland, by 18 April 2007. Comments may also be submitted by email: baselcommittee@bis.org or by fax: +41 61 280 9100. All comments will be published on the BIS website unless a commenter specifically requests anonymity.

The final version of this document has been published on 29 November 2007.