The EBA Publishes Key Regulatory Products On Operational Risk Losses Under The EU Banking Package Implementation

The European Banking Authority (EBA) today published three final draft Regulatory Technical Standards (RTS) that provide a taxonomy for operational risk losses and offer clarity on the exemptions for the calculation of the annual operational risk loss and on the adjustments to the loss data set that banks must perform when merging or acquiring entities or activities.

The RTS on establishing a risk taxonomy on operational risk provide a list of operational risk event types, categories and attributes that institutions must use when recording operational risk loss events, in line with the current framework and the international standards.

The RTS on the conditions under which it would be unduly burdensome for an institution to calculate the annual operational risk loss recognise cases when it would be disproportionate for an institution to promptly calculate the annual operational risk loss. In such cases, the RTS allow for a temporary waiver from the requirement to calculate the annual operational risk loss.

The RTS on the adjustments to an institution’s loss data set following the inclusion of losses from merged or acquired entities or activities provide indications on the currency and the risk taxonomy to be used when incorporating the loss data set of merged entities or activities, and provides guidance on how to calculate the annual operational risk loss when data on historical losses are not available.

Legal basis and background

Article 317(9) of Regulation (EU) No 575/2013 (Capital Requirements Regulation - CRR), mandates the EBA to develop draft RTS to establishing a risk taxonomy on operational risk that complies with international standards and a methodology to classify the loss events included in the loss data set based on that risk taxonomy on operational risk.

The operational risk taxonomy represents a significant update of the operational risk loss events, featuring clearer definitions and enhanced descriptions. It aligns with industry’s best practices by capturing the attributes of loss events, which represent additional information on the nature of the losses that go beyond the event types and the categories.

Furthermore, the operational risk taxonomy is aligned with the definitions in the Digital Operational Resilience Act (DORA), allowing for a simpler management of the loss dataset. Finally, attributes on ESG are meant to complement the risk taxonomy, allowing institutions to add this piece of information to relevant operational risk losses.         

Article 316(3) of the CRR, mandates the EBA to develop draft RTS to specify the conditions under which it would be unduly burdensome for an institution to calculate the annual operational risk loss.

Article 321(2) of the CRR3 mandates the EBA to draft RTS to determine the adjustments to an institution’s loss data set following the inclusion of losses from merged or acquired entities or activities.