Guidance Note G11-2022 on Operational Risk Practices and Form BA 410

P O Box 427 Pretoria 0001 South Africa P O Box 427 Pretoria 0001 South Africa 370 Helen Joseph Street Pretoria 0002 +27 12 313 3911 / 0861 12 7272 www.resbank.co.za 1 Ref.: 15/8/1/2 G11/2022 To: All banks, branches of foreign institutions, controlling companies, eligible institutions and auditors of banks or controlling companies Guidance Note issued in terms of section 6(5) of the Banks Act 94 of 1990 Operational risk practices – completion and submission of the form BA 410 Executive summary The purpose of this guidance note is to (i) provide further guidance to banks, branches of foreign institutions and controlling companies (hereinafter collectively referred to as 'banks') regarding the completion and submission of the quarterly operational risk form BA 410 and (ii) ensure consistency in terms of operational risk reporting across banks. This guidance note does not relate to banks' internally agreed processes and thresholds. This Guidance Note replaces Guidance Note 9 of 2020.

1. Introduction 1.1 Regulation 34(2) of the Regulations relating to Banks (Regulations) sets out the purpose of the form BA 410 for a bank that adopted the advanced measurement approach (AMA) for the calculation of its required amount of capital and reserve funds in respect of operational risk. 1.2 In addition, as part of its supervisory processes, the Prudential Authority (PA) also requested banks that adopted the standardised approach (TSA) and the alternative standardised approach (ASA) for the calculation of their respective required amounts of capital and reserve funds in respect of operational risk to complete and submit the form BA 410. 1.3 The purpose of the form BA 410 is to obtain selected information in respect of, among other things, the bank’s loss event types, recorded gross losses and recovery of losses, which information is based on specified business lines and loss event types. Gross loss means a loss stemming from an operational risk event or event type before recoveries of any type. 1.4 This Guidance Note replaces Guidance Note 9 of 2020.

2 2. Line items 1 to 63 of form BA 410 2.1 The PA wishes to bring to the attention of banks that only losses defined as operational risk losses in the Regulations read with the relevant Basel framework, excluding credit boundary events, must be recorded in line items 1 to 63 of the form BA 410. 2.2 In accordance with the provisions of regulation 34(3) of the Regulations relating to items 1 to 63, and as specified in Directive 8/2022, banks must apply a minimum gross loss threshold amount of R10 000 for reporting purposes. 3. Line items 64 to 75 of form BA 410 3.1 Banks are reminded that for the purposes of internal operational risk management and reporting in line items 64 to 75 of the form BA 410, a bank should identify all material operational risk losses consistent with the scope of the definition of operational risk, including those losses related to credit risk and market risk. Material operational risk losses related to credit risk and market risk should, therefore, be flagged separately within a bank's internal operational risk database. 3.2 A written description must also be provided in column 21 of line items 64 to 75 of the form BA 410, for all material operational risk losses, including material boundary losses. Furthermore, banks should highlight in column 21 of the form BA 410 whether these material operational risk losses are related to credit risk or market risk. 3.3 In accordance with the provisions of regulation 34(3) of the Regulations relating to items 64 to 75 of the form BA 410, and as specified in Directive 8/2022, banks must apply a gross loss threshold amount of R5 million for reporting material operational risk losses, that is, banks shall report any specific loss as defined in paragraph 2.1 that is equal to and exceeds R5 million. Banks may, after consultation with the PA, use a lower threshold should they so wish. 4. Acknowledgement of receipt 4.1 Kindly ensure that a copy of this guidance note is made available to your institution’s external auditors. The attached acknowledgement of receipt, duly completed and signed by both the Chief Executive Officer of the institution and the said auditors, should be returned to the PA at the earliest convenience of the aforementioned signatories. Fundi Tshazibana Chief Executive Officer Date: The previous guidance note issued was Guidance Note 10/2022 dated 15 August 2022.