The Australian Prudential Regulation Authority (Apra) has proposed collecting operational risk loss data from authorised deposit-taking institutions (ADIs) as part of its new requirements under Basel II.
The proposals are outlined in the latest discussion paper on reporting requirements for Basel II, which also touches upon the calculation of minimum regulatory capital for credit, market and operational risk.
“Apra proposes it will collect actual operational risk loss data by business lines and event types. At each submission date, ADIs will be required to provide operational risk loss data for a 12-month period in two separate forms, each relating to a six-month period,” the discussion paper reads.
However, the provision will only apply to firms using the advanced approaches, a small portion of the firms affected by Basel II.
The reporting requirements for firms using the standardised approach broadly replicate existing reporting requirements, although the paper introduces a specific regulatory capital charge for an ADI’s operational risk that aligns with three specific areas of business – retail banking, commercial banking and all other activity.
Among the details outlined in the discussion paper, Apra has mandated several changes to its capital-adequacy reporting requirements.
• All deductions made from the total capital base will be deducted 50% from Tier I capital and 50% from Tier II capital.
• Additional deductions from capital have been included.
• Risk-weighted assets (RWA) for operational risk have also been included.
• RWA will be summarised by the category of risk (credit, operational and market) and the approaches to each that an ADI adopts.
Apra proposes to finalise and issue the reporting standards, reporting forms and instruction guides towards the end of this year before the reporting standards come into effect on January 1, 2008.
Comments on the discussion paper must be received by October 5, 2007. The paper can be found on Apra’s website: www.apra.gov.au.