EC adopts Delegated Regulation on RTS on operational risk requirements under CRR

The European Commission (EC) has adopted a Delegated Regulation regarding regulatory technical standards (RTS) specifying operational risk requirements under the Capital Requirements Regulation (CRR), as amended by the CRR3. The Delegated Regulation is based on draft RTS submitted by the European Banking Authority (EBA) and specifies key aspects of the operational risk framework. The RTS, amongst others:

• Business indicator components—specify the components of the business indicator by setting out a list of items and the elements to be excluded from the business indicator.
• Mergers, acquisitions and disposals—set out how institutions are to determine adjustments to the business indicator and their loss data set following mergers, acquisitions and disposals. In the case of disposals, they specify the conditions under which competent authorities may grant permission to exclude amounts related to disposed entities or activities from the business indicator, and the timing of such adjustments.
• Operational risk loss taxonomy—establish a risk taxonomy on operational risk and a methodology for classifying loss events included in the loss data set. Loss events are to be classified into seven Level 1 event types (including internal fraud, external fraud, employment practices and workplace safety, clients, products and business practices, damage to physical assets, business disruption and system failures, and execution, delivery and process management) and further into Level 2 categories. Institutions must also assign applicable attributes to each loss event, including ICT risk, model risk, and ESG risks.
• "Unduly burdensome" conditions—specify the conditions under which the calculation of the annual operational risk loss should be deemed "unduly burdensome" for institutions with a business indicator equal to or exceeding EUR 750 million and not exceeding EUR 1 billion. These include circumstances following mergers and acquisitions, where the EUR 750 million threshold is exceeded only temporarily, and for bridge institutions set up under the Bank Recovery and Resolution Directive (BRRD).

The Delegated Regulation will enter into force on the twentieth day following its publication in the Official Journal of the European Union.

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