Basel reissues op risk paper to give broader scope
Global banking regulators reissued a consultative paper on sound practices for operational risk management today, to give it a broader scope for smaller, local banks.
The Basel Committee on Banking Supervision, the body that effectively regulates international banking, is seeking industry comment on the paper by September 30.
The consultative paper was originally published in December last year. The Basel Committee said several changes were made in light of comments received on the December paper. It decided to release the paper for a second, short period of consultation before finalisation. The committee said it is not issuing a revised version of the second part of the December paper on supervisory guidance for a comprehensive op risk management programme.
Principle 2 of the new paper’s 10 principles urges bank directors to ensure a bank’s op risk management is subject to effective internal audit by operationally independent and trained staff. “The internal audit function should not be directly responsible for operational risk management,” the paper said.
Principle 7 said banks should have business continuity plans to ensure they can operate as going concerns, and minimise losses in the event of severe business disruption.
The new paper has less emphasis on the measurement of operational risk. Regulators felt this was of less relevance to smaller, local banks not intending to adopt the advanced measurement approaches to operational risk under the Basel Committee’s proposed Basel II bank accord.
The Basel II capital adequacy accord will for the first time require major banks to set aside protective capital against operational risk from late 2006.
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