Regulatory Alerts2014-03-31 | 02/17/600/0029/001Schedule II Part V(a): Computation of Risk-Weighted Amount for Operational Risk
The regulatory authority establishes Schedule II Part V(a) to standardize how financial institutions calculate risk-weighted amounts for operational risk. It mandates three distinct methodologies—the Basic Indicator, Standardised, and Alternative Standardised Approaches—each applying fixed beta factors to eight designated business lines. By prescribing exact capital charge formulas and gross income components over a three-year period, the schedule ensures consistent regulatory capital assessments.
Schedule II Part V(a): Computation of Risk-weighted Amount for Operational Risk First year Second year Third year First year Second year Third year 11.5.1.1.0.0 The Basic Indicator Approach (BIA) 15% 0 11.5.1.2.0.0 The Standardised Approach (TSA) 0 11.5.1.2.1.0 Corporate Finance (β1 ) 18% 0 11.5.1.2.2.0 Trading and Sales (β2 ) 18% 0 11.5.1.2.3.0 Payment and Settlement (β3 ) 18% 0 11.5.1.2.4.0 Agency Services (β4 ) 15% 0 11.5.1.2.5.0 Asset Management (β5 ) 12% 0 11.5.1.2.6.0 Retail Brokerage (β6 ) 12% 0 11.5.1.2.7.0 Retail Banking(β7 ) 12% 0 11.5.1.2.8.0 Commercial Banking(β8 ) 15% 0 11.5.1.3.0.0 The Alternative Standardised Approach (ASA) 0 11.5.1.3.1.0 Sub total 0 11.5.1.3.1.1 Corporate Finance (β1 ) 18% 0 11.5.1.3.1.2 Trading and Sales (β2 ) 18% 0 11.5.1.3.1.3 Payment and Settlement (β3 ) 18% 0 11.5.1.3.1.4 Agency Services (β4 ) 15% 0 11.5.1.3.1.5 Asset Management (β5 ) 12% 0 11.5.1.3.1.6 Retail Brokerage (β6 ) 12% 0 11.5.1.3.2.0 11.5.1.3.2.1 Retail Banking(β7) 12% 0.035 0 11.5.1.3.2.2 Commercial Banking(β8) 15% 0.035 0 11.5.1.9.0.0 11.5.1.9.1.0 0 11.5.1.9.2.0 0 11.5.1.9.3.0 0 11.5.1.10.0.0 11.5.1.10.1.0 0 11.5.1.10.2.0 0 11.5.1.10.3.0 The Alternative Standardised Approach (11.5.1.9.3.010) 0 Sub total Capital Charges for Operational Risk The Basic Indicator Approach (11.5.1.9.1.010) The Standardised Approach 11.5.1.9.2.0*10) The Basic Indicator Approach The Standardised Approach Risk-weighted Amount for Operational Risk Capital Charge Factor (ɑ & β) 11.5.1.5.0.0 Fixed factor 'm' 11.5.1.6.0.0 Capital Charges 11.5.1.8.0.0 Gross Income/ Loans & Advances 11.5.1.7.0.0 Code Business Lines (11.5.1.4.0.0) The Alternative Standardised Approach Capital Charge for Operational Risk under BIA KBIA = [Σ(GI1….n xɑ )]/n Capital Charge for Operational Risk under TSA KTSA = {Σyears 1-3 max[Σ(GI1-8 x β1-8),0]}/3 Capital Charge for Operational Risk under ASA KASA = {Σyears 1-3 max[Σ(GI1-6 x β1-6),0]} /3 + (β7 x m x LAr) + (β8 x m x LAc)
Part V(b): Computation of Gross Income under Operational Risk First year Second year Third year First year Second year Third year First year Second year Third year First year Second year Third year First year Second year Third year 11.5.2.1.0.0 The Basic Indicator Approach 11.5.2.2.0.0 The Standardised Approach/The Alternative Standardised Approach 0 11.5.2.2.1.0 Corporate Finance 11.5.2.2.2.0 Trading and Sales 11.5.2.2.3.0 Payment and Settlement 11.5.2.2.4.0 Agency Services 11.5.2.2.5.0 Asset Management 11.5.2.2.6.0 Retail Brokerage 11.5.2.2.7.0 Retail Banking 11.5.2.2.8.0 Commercial Banking Extraordinary / Irregular Item of Income (11.5.2.8.0.0) Realised Profits from the Sale of Securities in the Banking Book (11.5.2.7.0.0) Code Business Lines (11.5.2.3.0.0) Interest Income (11.5.2.4.0.0) Interest Expenses (11.5.2.5.0.0) Non Interest Income (11.5.2.6.0.0)