UK concern over 'use test' requirements

London – The op risk industry in the UK has expressed its confusion over the 'use test' for op risk contained in Basel II, the EU's Capital Requirements Directive, and lastly in the Financial Services Authority's own consultation paper on the subject.

The use test requires that firms actually use the op risk framework they have in place to calculate their capital charge to help manage their business. But firms are concerned that use test requirements are too rigid, and that they will result in a substantial cost burden on their firms.

The industry is caught between two difficult options – some have suggested guidance on the use test format would be helpful, as they are confused about how it should be incorporated into their project. On the