Circular No. 3863 — Establishes Procedures for Calculating the Simplified Risk-Weighted Asset Component (RWAS5) for Operational Risk Capital

CIRCULAR NO. 3,863, OF DECEMBER 7, 2017

Establishes the procedures for calculating the simplified risk-weighted asset component (RWAS5) related to the calculation of capital required for operational risk through the simplified standardized approach (RWAROSimp), as provided for in Resolution No. 4,606, of October 19, 2017.

The Collegiate Board of the Central Bank of Brazil, in a session held on December 7, 2017, based on the provisions of Articles 9, 10, item IX, and 11, item VII, of Law No. 4,595, of December 31, 1964, and considering the provisions of Article 11 of Resolution No. 4,606, of October 19, 2017,

RESOLVES:

CHAPTER I

OF THE OBJECT OF APPLICATION

Article 1. This Circular establishes the procedures for calculating the simplified risk-weighted asset component (RWAS5) related to the calculation of the capital requirement to cover operational risk through the simplified standardized approach (RWAROSimp), as provided for in Resolution No. 4,606, of October 19, 2017.

CHAPTER II

OF THE CALCULATION OF THE RWAROSimp COMPONENT

Article 2. The value of the RWAROSimp component must be determined semiannually, considering the last three annual periods.

§ 1. For the purposes of this Circular, an annual period is understood as the set of data corresponding to two consecutive semesters ending on the reference dates of June 30 or December 31.

§ 2. The value of the RWAROSimp component must be determined with information related to the reference dates mentioned in § 1.

§ 3. The value of the RWAROSimp component determined with information related to each reference date must be maintained until the next reference date.

Article 3. The value of the RWAROSimp component must be determined based on the following formula:

RWAROSimp = (1 / F') * Σ (from i=0 to 2) [α * BISimp(t-i)]

where:

I - F' = minimum PRS5 requirement established in Article 12 of Resolution No. 4,606, of 2017;

II - α = 5% (five percent) for institutions belonging to Group I or Group II, as provided for in Article 2, items I and II, of Resolution No. 4,606, of 2017;

III - α = 15% (fifteen percent) for institutions belonging to Group III, as provided for in Article 2, item III, of Resolution No. 4,606, of 2017; and

IV - BISimp(t) = Simplified Operational Risk Exposure Indicator in the annual period “t”.

Article 4. The BISimp corresponds, for each annual period, to the sum of the following components:

BISimp(t) = CFAt + CSt

where:

I - CFAt = expanded financial component of the annual period “t”; and

II - CSt = service provision and other operational results component of the annual period “t”.

§ 1. The CFAt component must be determined, in each annual period “t”, according to the following formula:

CFAt = Abs(RJt - Abs(DJt) + RPt) + Abs(RFLt)

where:

I - Abs(∙) is the function that returns the absolute value of the parameter;

II - RJt = interest and leasing revenues of the annual period “t”;

III - DJt = interest and leasing expenses of the annual period “t”;

IV - RPt = participation revenues of the annual period “t”; and

V - RFLt = net financial result for the annual period “t”.

§ 2. The CSt component must be determined, in each annual period “t”, according to the following formula:

CSt = Max(RSt; Abs(DSt)) + Max(OROt; Abs(ODOt))

where:

I - Abs(∙) is the function that returns the absolute value of the parameter;

II - Max(∙) is the function that returns the highest value among the different parameters;

III - RSt = service revenues of the annual period “t”;

IV - DSt = service expenses of the annual period “t”;

V - OROt = other operational revenues of the annual period “t”; and

VI - ODOt = other operational expenses of the annual period “t”.

Article 5. An institution that has not yet completed three annual periods of activity must calculate the RWAROSimp component as follows:

I - while the institution has not completed the third reference date in activity, the RWAROSimp component must correspond to:

a) 10% (ten percent) of the sum of the RWARCSimp and RWACAMSimp components, if the institution belongs to Groups I or II;

b) 160% (one hundred and sixty percent) of the sum of the RWARCSimp and RWACAMSimp components, if the institution belongs to Group III;

II - after the institution completes the third reference date in activity, the calculation of the RWAROSimp component must:

a) determine BISimp(t) based on information related to the last two reference dates; and

b) use the following formula:

RWAROSimp = (1 / F') * α * BISimp(t);

III - after the institution completes the fourth reference date in activity, the calculation of the RWAROSimp component must:

a) determine BISimp(t) based on information related to the last three reference dates; and

b) use the following formula:

RWAROSimp = (1 / F') * α * (2/3) * BISimp(t);

IV - after the institution completes the fifth reference date in activity, the calculation of the RWAROSimp component must:

a) determine BISimp(t) based on information related to the last two annual periods; and

b) use the following formula:

RWAROSimp = (1 / F') * Σ (from i=0 to 1) [α * BISimp(t-i)];

V - after the institution completes the sixth reference date in activity, the calculation of the RWAROSimp component must:

a) determine BISimp(t) for the most recent annual period based on information related to the last two reference dates;

b) determine BISimp(t) for the second annual period based on information related to the three semesters immediately preceding those of the most recent annual period, multiplying the sum of the components of BISimp(t) by 2/3 (two-thirds); and

c) use the following formula:

RWAROSimp = (1 / F') * Σ (from i=0 to 1) [α * BISimp(t-i)];

VI - after the institution completes the seventh reference date in activity, the calculation of the RWAROSimp component must be made using the formula provided in Article 3.

Article 6. A financial institution resulting from a merger or incorporation process must calculate the RWAROSimp component using the sum of the subcomponents mentioned in Article 4, §§ 1 and 2, of each original institution, to determine the BISimp of the resulting institution.

Article 7. A financial institution resulting from a spin-off process must calculate the RWAROSimp component using values for the subcomponents mentioned in Article 4, §§ 1 and 2, in proportion to the division verified in the assets of the original institution.

Article 8. The procedures defined in Articles 5, 6, and 7 may only be used for the annual periods in which information related to the new institution is not available.

Article 9. Institutions part of a prudential conglomerate in accordance with the Accounting Plan of the Institutions of the National Financial System (Cosif) must calculate the RWAROSimp amount based on consolidated financial statements.

Article 10. An institution that ceases to prepare financial statements in the individual form and begins to prepare them in the prudential conglomerate form, or vice versa, must calculate the RWAROSimp component as follows:

I - while the institution has not completed the third reference date in the current form of preparing financial statements, the RWAROSimp component must correspond to the sum of the RWARCSimp and RWACAMSimp components, multiplied by the maximum between:

a) the quotient between the balance of the RWAROSimp component and the sum of the balances of the RWARCSimp and RWACAMSimp components, determined before the change in the form of preparing the financial statements mentioned in the caput;

b) 10% (ten percent) if the institution belongs to Group I or Group II, as provided for in Article 2, items I and II, of Resolution No. 4,606, of 2017; or

c) 160% (one hundred and sixty percent), if the institution belongs to Group III, as provided for in Article 2, item III, of Resolution No. 4,606, of 2017;

II - after the institution completes the third reference date, counted from the change in the form of preparing the financial statements, the RWAROSimp component must correspond to the provisions of Article 5.

Article 11. The data used in the calculation of the RWAS5 amount must be reconciled with audited information semiannually and annually.

CHAPTER III

FINAL PROVISIONS

Article 12. This Circular enters into force on February 18, 2018.

Otávio Ribeiro Damaso
Director of Regulation

This text does not replace the published in the Official Gazette of the Union (DOU) of 12/11/2017, Section 1, p. 63/64, rectified in the DOU of 12/12/2017, Section 1, p. 24/25, and in Sisbacen.