Insurance: evolution beyond CP3

NEW YORK - Stringent new requirements for the use of insurance to offset capital charges for operational risk have been spelled out in the Basel Committee’s third consultative paper (CP3).

Now both regulators and banks expect a pitched negotiating effort to clarify those requirements prior to issuance of the Accord’s final version later this year.

Issues such as the use of haircuts for residual risks, minimum notice periods for policy cancellations, not to mention the 20% limit on use of insurance to offset operational risk charges under the advanced measurement approach, require further consideration. But given the relatively small window of time in which to settle these