Commission highlights weak points of op risk insurance

BRUSSELS - The European Commission highlighted in November major drawbacks to the use of operational risk insurance to reduce op risk capital charges, despite its readiness to explore a wider use of insurance than that proposed in the Basel II bank accord.

The commission said the so-called limit-based approach to using insurance seemed difficult to implement in practice, while premium-based approaches could result in firms with the weakest operational controls enjoying lower capital charges than better-managed banks and investment firms.

The commission, which is the executive body of the European Union (EU), said in a working document it would consider whether there was a case for allowing insurance to offset operational risk capital charges

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