EBA consults on new rules business indicator for operational risk as part of implementing EU Banking Package

Key takeaways

• The European Banking Authority has published a consultation on three sets of draft technical standards on the new business indicator, implementing the new capital requirement rules.
• The standards clarify the indicator, map the indicator items to financial reporting (FINREP) items and highlight possible adjustments to the indicator in case of specific operations.
• The consultation runs until 21 May 2024.

The consultation

On 20 February 2024, the European Banking Authority (EBA) launched a consultation on two sets of draft Regulatory Technical Standards (RTS) and an Implementing Technical Standard (ITS) on the new business indicator (BI) under the Capital Requirements Regulation, as revised by the banking package implementing Basel III (CRR III).

CRR III amends the operational risk area by replacing previous approaches with a new framework for the calculation of the regulatory capital, the business indicator component (BIC). The BIC is based on the BI, which measures the institution’s volume of business. The BI is required for the operational risk capital requirements calculation.

The draft RTS on the specification on the BI items provide a list of typical items developed for each component of the BI, building on the EBA Policy Advice on the Basel III Reform. They also include subsequent amendments to accounting standards and clarify the elements to be excluded from the business indicator. The draft ITS map the typical items of the BI to their corresponding reporting cells in FINREP, where possible. The draft RTS on BI adjustments oblige credit institutions to use the actual three-year historical data or a limited number of alternative methodologies following an operation. These draft RTS also specify the conditions under which permission to exclude business indicator items related to disposed entities or activities may be granted in case of a disposal.

In addition to the public consultation, the EBA will carry out a quantitative analysis based on data requested as part of the Basel III monitoring quantitative impact study. The aim of the study is to analyse the impact of the proposed amendments and to inform the calibration of certain aspects of the new framework. For the finalisation of the draft technical standards, both the consultation feedback and the study results will be taken into account.

Next steps

The consultation runs until 21 May 2024 and a public hearing will take place in the form of a webinar on 20 March 2024. Once finalised, the draft standards will be sent to the European Commission for adoption.

For more information or assistance, please contact our EU Financial Services Regulatory team.