QIS 3 FAQ: H. Operational Risk
Please note, these operational risk FAQs are intended to facilitate the completion of the QIS survey and operational risk loss data collection exercises and, as with other FAQs, must not be construed as an official interpretation of the final Accord.
1. Under the Standardised Approach, can banks use internal pricing methods to allocate gross income (revenue and/or expenses) across business lines?
Answer: For the QIS, banks may use established internal pricing methods to allocate gross income provided that total gross income for the bank (as recorded under the Basic Indicator Approach) still equals the sum of gross income for the eight business lines. Principles for mapping business lines are set out in more detail in Paragraph 605 and Annex 6 of the QIS 3 Technical Guidance.
2. Should income from participations be included in gross income? If so, which business line?
Answer: For purposes of the QIS, income from participations should be included in gross income. For guidance on the business line classification of a particular participation, banks should contact their national supervisor.
3. The wording of the definition of gross income used in the QIS instructions is slightly different from the wording used in the 2002 Operational risk loss data collection exercise. Does this mean that the scope of gross income has changed?
Answer: No. The new phrasing of the definition of gross income in the QIS instructions is intended to clarify the definition of gross income, rather than to change it. As such, gross income data reported in the QIS3 exercise should generally be the same as equivalent data reported in the 2002 loss data collection exercise. Where the data are different, banks may be contacted by their supervisor to confirm the reasons for the difference.
4. How should gross income be recorded under the Basic Indicator Approach or the Standardised Approach where a bank has incurred an overall gross loss or a gross loss in respect of some of its business lines?
Answer: For the purposes of the QIS, the bank should report its actual gross income figures under the Basic Indicator Approach and/or for each business line under the Standardised Approach whether the amounts are positive or negative. Where the 3-year average gross income under the BIA is negative, the spreadsheet automatically calculates zero capital (Table D, Column 6). However, under the Standardised Approach, where the 3-year average gross income for a particular business line is negative (Table F, Column 4), the bank should manually input zero required capital for that business line (Table F, Column 6).
5. What date should be used for the reporting of an operational risk loss event? For example, should banks use the date of the occurrence of the event, the date of discovery, the date the loss is registered in the accounts?
Answer: For the purposes of the loss data surveys, losses should be reported according to their 'date of discovery', i.e. the date that the event is recorded in internal reporting systems (not the financial statement). All subsequent loss effects relating to the event should be recorded at this date, regardless of exactly when they crystallised.
6. How should losses from multiple impact events be recorded (i.e. an event that reflects a number of different event types and/or affects a number of different business lines)?
Answer: For the purposes of the loss data surveys, banks should allocate the gross loss amounts to the different relevant business lines and/or event types but report the same reference number for each of these separate loss events. Thus, the loss is considered to be one event and is given one reference number but it is allocated to the appropriate business lines and event types.
7. Some operational risk events result in net gains to the bank. How should these be treated?
Answer: For the purpose of the loss data surveys, these occurrences are near misses and thus should not be included as an operational risk loss.
8. Should losses that have elements of both credit risk and operational risk be included in the operational risk loss data survey?
Answer: Yes, losses that have elements of credit risk and operational risk should be reported in the loss data survey. However, any loss that is not purely operational risk should be clearly identified as such in the survey. A similar approach should be used for losses that have elements of both market risk and operational risk.
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