The Big Change in Operational Risk in Basel 3.1: What You Need to Know
Welcome to our 'Basics Series,' where we decode complex industry updates to make them exciting and understandable. Today, we're unwrapping the removal of internal models in calculating operational risk capital requirements in Basel 3.1.
Say Goodbye to the Old: A Fresh Operational Risk Framework
Big news! The Basel Committee on Banking Supervision (BCBS) has given operational risk a facelift. Here's what's shaking up the world of risk assessment:
1. Out with the Old, In with the New
The old way of calculating Pillar 1 operational risk capital (ORC) is getting a makeover. Say farewell to the existing operational risk approaches because they're making way for a standardised approach. It's a bold move that aims to simplify the process.
2. PRA Takes the Stage
The Prudential Regulation Authority (PRA) is stepping in with significant changes. They're retiring the Capital Requirements Regulation (CRR) Pillar 1 operational risk framework and the "Operational risk" rulebook (SS14/13). Out with the old, in with the new!
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3. The Fresh Formula: Simplicity at Its Best
So, how do you calculate the new Pillar 1 ORC requirements? It's easier than you might think. You'll use a simple formula:
It's all about making things straightforward and effective.
4. The Countdown Begins: 2025 Is the Year
Get ready to mark your calendar! If this policy comes into play, it's all happening on January 1, 2025. It's not too far off, and it's a date to remember.
In a nutshell, the world of operational risk is evolving. It's becoming more straightforward and effective, thanks to BCBS and PRA. These changes might seem like a shift, but with the right perspective, they're the keys to a brighter and more efficient future.
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