Final Report on draft TS on Business Indicator mandates for operational risk

EBA/RTS/2025/02
EBA/ITS/2025/06
16 June 2025
EBA Regular Use
Final Report
Draft regulatory technical standards on the components of the business indicator under Article 314(9)(a) of the CRR and the elements to be excluded from the business indi￾cator under Article 314(9)(b) of the CRR and on the adjustments to the business indicator under Article 315(3)(a), (b) and (c) of the CRR Draft implementing technical standards on the mapping of the business indicator components with corre￾sponding supervisory reporting references under Article 314(10) of the CRR

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK Contents

1. Executive Summary 3
2. Background and rationale 5
3. Draft regulatory technical standards on the components of and the elements to be excluded of
   the Business indicator under Article 314(9) of the CRR and draft regulatory technical standards on the adjustments to the business indicator under Article 315(3)(a), (b) and (c) of the CRR 20
4. Draft implementing technical standards on the mapping of the business indicator components
   with corresponding supervisory reporting references under Article 314(10) of the CRR 36
5. Accompanying documents 45

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK 1.Executive Summary Regulation (EU) No 575/2013 (CRR), as amended by Regulation (EU) 2024/1623, includes amend￾ments to the operational risk capital calculation, where a revised framework is introduced and all previously existing approaches for the calculation of the regulatory capital are replaced by the busi￾ness indicator component (BIC). The BIC is based on the business indicator (BI), which measures an institution’s volume of business. The EBA has received several mandates concerning the items that make up the BI and how certain operations, such as mergers and acquisitions or disposals, should be considered when calculating the BI:
 Draft regulatory technical standards (RTS) for the EBA mandate in letters (a) and (b) of Ar￾ticle 314(9) to further specify the components of the BI by developing a list of items and the elements to be excluded from the BI, respectively;  Draft implementing technical standards (ITS) for the EBA mandate in Article 314(10) to pro￾vide the mapping of the BI items to the corresponding reporting cells in Commission Imple￾menting Regulation (EU) 2021/451 (FINREP);  Draft regulatory technical standards for the EBA mandate in Article 315(3) of Regulation (EU) No 575/2013, as amended by Regulation (EU) 2024/1623, to specify ‘how institutions shall determine the adjustments to the business indicator’ (point (a) referencing mergers, acquisitions and disposals), ‘the conditions according to which competent authorities may grant the permission’ and ‘the timing of the adjustments’ (points (b) and (c) referencing disposals only). A legal text has been drafted to include the provisions corresponding to the two EBA mandates for RTS (i.e. Articles 314(9) and 315(3) of the CRR), while the EBA mandate for ITS has been delivered in a separate legal text. In particular, a list of typical items has been developed for each component of the BI. This list of items is mainly based on the work carried out for the EBA Policy Advice on the Basel III Reform:
Operational Risk (Annex 3, Table 13)1
. The following changes were made:

• Some changes reflect subsequent amendments to accounting standards, such as for the
  interest, leases and dividends component (ILDC), where the definition of a lease in IFRS 16 has been taken into account in determining the items to be included, or where derivatives with a positive fair value originating flows such as interest income or expenses are in￾cluded.
• With regards to the services component (SC), a breakdown of expenses, losses, provisions
  and other financial impacts due to operational risk events has been provided in order to 1 eba.europa.eu/sites/default/files/Policy Advice on Basel III reforms - Operational Risk.pdf

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK obtain adequate and comprehensive information on where the impacts of operational risk events are accounted for in an institution’s profit and loss (P&L).

• Concerning the financial component (FC), clarifications have been brought to how the two
  available approaches work for calculating the trading book and banking book compo￾nents, together with clarifications on their use and conditions for reversal from one to the other.
• In terms of elements to be excluded from the BI calculation, clarifications were brought.
  While some of these clarifications are easily identifiable in the financial statement, other elements would benefit from additional detail, such as income and expenses from insur￾ance or reinsurance business in cases where an institution sells or distributes insurance products or services to its clients. When an institution concludes a merger or an acquisition, the BI of the previous three years of the merged or acquired institution should be considered and incorporated retroactively in the consoli￾dated BI of the acquiring institution. These draft RTS require institutions to use actual three-year historical data or, when their use would not be possible, provides for two alternative methodolo￾gies. In the context of disposals, the draft RTS specify the conditions under which permission to exclude BI items related to disposed entities or activities may be granted. Particular attention is given to the presence of guarantee commitments according to which the disposing entity may be requested to cover losses or liabilities that took place in advance of the disposal but were revealed afterwards. Regarding the BI adjustments following disposals, a materiality threshold for disposals on a yearly aggregate level is introduced. Below this threshold, adjustments can take place even without written supervisory permission. This is to provide clarity on the timing of the process for institutions with frequent disposals of low amounts, which have a marginal impact on the BI and thus the amount of capital requirements for operational risk. Finally, the typical items for each of the components of the BI were mapped to their corresponding reporting cells in FINREP. Next steps The draft regulatory technical standards will be submitted to the Commission for endorsement, following which they will be subject to scrutiny by the European Parliament and the Council before being published in the Official Journal of the European Union.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK 2.Background and rationale

1. The banking package that implements the Basel III framework in the EU envisages several
   amendments to the Capital Requirements Regulation (‘CRR’). This includes the introduction in the EU of a revised framework for own funds requirements for operational risk, consisting of replacing all existing approaches for the calculation of the regulatory capital with a single, non￾model-based approach: the business indicator component (BIC).
2. In the context of the BIC, the capital requirements for operational risk are based on a business
   indicator (BI), a financial statement-based proxy for operational risk consistent with the BCBS standards OPE 25.1(1). The BI is thus based on three components: an interest, leases and divi￾dends component (ILDC), a service component (SC) and a financial component (FC).
3. The following sub-sections provide further details on the development of the draft RTS under
   Article 314(9)(a) and (b) of the CRR, the draft ITS under Article 314(10) of the CRR and the draft
   RTS under Article 315(3) of the CRR.
4. During the three-month public consultation phase that ended on 21 May 2024, the respondents
   provided a significant number of comments on all three technical standards presented in the CP. The simultaneous publication of the CP on policy mandates and the CPs on reporting and transparency has drawn mixed comments, addressing policy and reporting issues in all three CPs, and consequential efforts were put into disentangling the nature of the comments. This final report deals predominantly with aspects pertaining to the policy reasoning behind the de￾cisions made and only answers reporting-related points where this is of the essence for a sound application of the policy stances. Draft regulatory technical standards on the components of the busi￾ness indicator under Article 314(9)(a) of the CRR and the elements to be excluded from the business indicator under Article 314(9)(b) of the CRR
5. Article 314(9)(a) of Regulation (EU) No 575/2013 (CRR), as amended by Regulation
   (EU) 2024/1623, mandates the EBA to draft regulatory technical standards (RTS) specifying the components of the BI, and their use, by developing a list of typical sub-items (hereinafter ‘items’) considering international regulatory standards and, where appropriate, the prudential bound￾ary defined in Part Three, Title I, Chapter 3 of the CRR.
6. To ensure clarity and consistency in the application of operational risk capital requirements
   across the European Union, a list of typical items has been developed for each component of the BI. This list is mainly based on the work carried out by the EBA in response to European Commission’s Call for Advice and published in the ‘EBA Policy Advice on the Basel III Reform:

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK Operational Risk’ (Annex 3, Table 13)2 . Limited further changes reflect subsequent amendments in accounting standards, as well as feedback received via various interactions with the industry. The Interest, leases and dividends component (ILDC)
7. The ILDC is made up of three components (i.e. the interest and leases component – IC, the asset
component – AC, and the dividends component – DC) and is calculated according to the follow￾ing formula:
8. The list of items included in the IC has been updated to reflect the changes in the International
Financial Reporting Standards 9 (IFRS9) on Financial Instruments and in IFRS16 on Leases3 . In particular, pursuant to Article 314(2)(4), which requires institutions to include lease income and lease expenses in the IC, including depreciation and impairment, the definition of a lease in IFRS 16 has been considered in determining the items to be included in the IC. According to this approach, all income and expenses from investment properties that have generated rents in each relevant period for the calculation of the BI, including rental income from investment prop￾erties, are included within the IC. Similar changes have been considered for the AC.
9. However, following the public consultation, the legal text has been amended to clarify that, for
the IC, on the interest expenses side, depreciation, impairment and losses only refer to operat￾ing lease assets, and losses from ‘lease modification’ should not be included in the mapping, since they refer only to financial leases. 10.In addition, in the context of the ILDC, the typical items of the AC include all assets in the balance sheet originating interest income and/or interest expenses in each relevant period for the cal￾culation of the BI. Besides cash balance at central banks and other demand deposits, loans and advances, debt securities and tangible and intangible assets subject to lease, derivatives with positive fair value originating flows like interest income or expenses are also included in the AC. Depending on the type of assets, the gross carrying amount, the carrying amount or the fair value is considered as the relevant ‘value’.
11. In light of the replies to the public consultation, the draft legal text has been amended to clarify
that the definition of interest-earning assets in the RTS/ITS also refers to cases where derivatives do not generate or accrue interest but have a similar flow to the P&L (e.g. interest rate deriva￾tives, where the flow to the P&L is given by the difference between the fixed and variable legs). 2 EBA BS 2019 XXX (Draft Policy Advice on Basel III reforms – Operational Risk).docx 3 The IFRS 16 on Leases makes a single accounting model for the lessee, while for the lessor it retains the IAS 17 Leases accounting treatment. This means that, for the lessee, there is no dual accounting model, so there is no differentiation between the operating and finance leases. In all cases, the lessee has to record the asset (right of use) on the balance sheet and a lease liability representing its obligation to make lease payments. In the case of the lessor, IFRS 16 maintains the distinction between a finance lease and an operating lease. Only where the lease is considered to be an operating lease is the asset retained on the balance sheet. As such, only for operating leases, the asset has to be included in the AC (for financial leases, the institution will replace the asset with a loan and advance).

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK The services component (SC)
12. This component is calculated based on four amounts: other operating income (OI), other oper￾ating expenses (OE), fee and commission income (FI) and fee and commission expenses (FE),
and the following formula applies:
13.
14. Article 314(5)(5) of the CRR requires institutions to include the institution’s expenses and losses
from operational risk events in OE. The impacts of operational risk events may be reflected in an institution’s financial statement through different accounting breakdowns, which in turn may result in expenses, losses and financial impacts other than those related to operational risk events. As a result, the correspondence with the various items in an institution’s P&L statement is not straightforward.
15. Therefore, to obtain adequate and comprehensive information on where the impacts of oper￾ational risk events are accounted for in an institution’s P&L, a breakdown of expenses, losses,
provisions and other financial impacts due to operational risk events has been provided. More￾over, it is maintained that the other operating expenses, in accordance with Article 314(5) and
Article 314(7)(b) respectively, are fed with all the impacts of operational risk events, however
they are labelled or accounted for, affecting an institution’s financial statement, and are not net of any related payments received from insurance or reinsurance policies purchased. Finally, they should include exceptional losses that, following the permission given by the competent author￾ity pursuant to Article 320(1) of that Regulation, can be excluded from the calculation of the institution’s annual operational risk loss.
16. As a follow-up to the feedback received during the consultation period, the legal text has been
amended to clarify that the recovery of administrative expenses – which encompasses recovery of payments on behalf of customers (e.g. taxes debited to customers, stamp duty, substitute tax and other recoveries) – should not be included in the OI. As regards the OE, and in line with
Article 317(5) of Regulation (EU) No 575/2013, as amended by Regulation (EU) 2024/1623,
which clearly states that boundary losses with credit risk that are not included into the credit RWA should be considered under the operational risk perimeter, the legal text has been amended to include ‘Impairment or (-) reversal of impairment’ in the breakdown of expenses, losses, provisions and other financial impacts due to operational risk events. These boundary losses typically refer to unpaid credit assets due to operational risk events (credit frauds, unen￾forceable credit contracts, collateral failures, etc.) that are not accounted for in the credit RWA. Furthermore, it was clarified that any financial impact due to operational risk events should be included within the OE, irrespective of whether it is related to lease assets, or is accounted for in different items of the BI (e.g. interest expenses) or in items which do not belong to the BI (e.g. administrative expenses). Finally, it was also clarified that recoveries other than insurance and reinsurance should be used to net operational risk losses before these are included within the OE. The financial component (FC)
17. The financial component (FC) is the sum of the trading book component (TC) and the banking
book component (BC), where each of these components is computed as the annual average of the absolute values over the previous three financial years of the net profit or loss (P&L):

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK 18.
19. In its policy advice on the European implementation of the Basel III framework for operational
risk, the EBA adopted an accounting-based approach (accounting approach, AA) to define all the components, including the TC and the BC, in full alignment with the Basel framework stance on the BI being ‘a financial statement-based proxy’ for operational risk (OPE 25.1(1)). According to the AA, the net gains and losses from the accounting trading portfolio are assigned to the TC and the net gains and losses from the accounting non-trading (i.e. banking) portfolios are as￾signed to the BC.
20. However, under this approach, certain types of operations and accounting choices, including
the economic hedging of fair value through profit and loss positions, or the bifurcation of deriv￾atives embedded in host hybrid or structured financial instruments, may cause an ‘unwarranted increase’ in the FC. In the economic hedging, this ‘unwarranted increase’ would be caused by the presence of types of operations that are strictly related to each other, and which are of opposite P&L sign, but which are accounted for in different components of the FC (i.e. the TC and the BC) when calculated in accordance with the international regulatory standards. Since the FC formula envisages the sum of the absolute values of the P&L of the TC and the BC, the amounts of these operations cannot be netted when computing the FC.
21. Considering the above, fourth subparagraph of Article 314(4) clarifies that the institution’s trad￾ing book shall be defined as appropriate either in accordance with accounting standards or in
accordance with Part Three, Title I, Chapter 3 (i.e. the prudential boundary criteria). Moreover, in accordance with Article 314(9), point (a), the EBA is mandated to develop the list of items of the BI by ‘taking into account international regulatory standards and, where appropriate, the prudential boundary defined in Part Three, Title I, Chapter 3’. Were the prudential boundary criteria to be used to calculate the FC in the cases mentioned in paragraph 18, the ‘unwarranted increase’ would be avoided, since, under this framework, those operations would be treated as being under the same book (i.e. the prudential trading book or the prudential non-trading book), thus allowing the netting of their amounts within the FC.
22. Moreover, there might be other situations beyond those already mentioned that could cause
an ‘unwarranted increase’ in the FC; however, it is neither possible to identify ex ante all of them, nor to ex ante set values or percentages for the ‘unwarranted increase’, since this strictly depends on the types of operation and/or the accounting choice adopted by an institution (e.g. for hedging) in its ordinary business rather than on specific products or instruments.
23. Based on this background, the draft RTS provide that, instead of using the AA, an institution
may adopt – where certain conditions apply – the Prudential Boundary Approach, PBA, for cal￾culating the FC, thus adjusting the items of the TC and of the BC according to the rules envisaged in the prudential boundary framework of the CRR, as referenced in the mandate granted to the EBA.
24. To ensure a uniform application of the prudential boundary framework to the different risks
that institutions are exposed to, when using the PBA, institutions should implement it consist￾ently with the strategies, policies, procedures, systems and controls adopted in accordance with
Part Three, Title I, Chapter 3.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK
25. Moreover, it is worth highlighting that the ‘trading book’ concept cannot simply be applied to
the own funds requirements for operational risk. This is because, unlike the capital requirements for market risk or other risks, which are based on the stocks of the regulatory trading and non￾trading books portfolio at specific dates (e.g. 31/12, 30/6), the own funds requirements for op￾erational risk are computed starting from the P&L flows for the components of the BI. These P&L flows are clearly identifiable for the trading and non-trading components of the FC only when an accounting-based method is used, since this means using common accounting stand￾ards (e.g. IFRS) and institutions’ regulatory reporting (e.g. in FINREP).
26. In the absence of such an accounting hook, retrieving the P&L of all the positions held in the
prudential trading book and non-trading book, starting from a daily basis until reaching the three years envisaged for the calculation of the FC, requires the institutions having dedicated organi￾sational measures, which are not necessarily fully compatible with those stocks-based methods implemented for the calculation of the own funds requirements for market risk or other risks. Therefore, institutions that intend to use the PBA should be required to have in place policies, procedures, systems and controls to carry out such calculations in a proper manner.
27. To provide a sound framework for the use of the PBA, several features are included in the draft
RTS:
a) Consistency: In order to avoid regulatory arbitrage, once the PBA is chosen, it should be used for all three years envisaged for the calculation of the FC; b) Transparency: It is important to accompany the use of the PBA with an ex ante notification process, through which the institutions inform the competent authorities of their choice and document the fulfilment of the criteria for the use of the PBA. c) Reversal to AA: Where any of the conditions for the use of the PBA are no longer fulfilled, e.g. when the operations originating the ‘unwarranted increase’ in the FC are dismissed, the institutions should revert to the AA and should not use the PBA again in the three years following the reversal. A notification prior to the reversal, including proper information and documentation, should be provided to the competent authorities.
28. The EBA has analysed the development of this approach in light of the comments received dur￾ing the consultation period. The EBA considers that it is within its mandate to clarify when it is
appropriate to use either the AA or the PBA, and does not see these clarifications as introducing a hierarchy between the two approaches. There is nonetheless a need to specify when the two can be used and, more importantly, to ensure the institutions have the means necessary to com￾ply with the requirements of either of the two approaches.
29. With a view to ensuring proper interpretation of the conditions for the use of the PBA set out
in the Consultation Paper, the legal text was amended to clarify that, in the case of economic hedging, the ‘unwarranted increase’ should not be extended to: a) the P&L of hedging instru￾ments in the trading book, which are not strictly and clearly related to the P&L of the hedged instruments in the non-trading book valued at fair value through profit and loss in the account￾ing statement of profit and loss; or b) to situations where the institution does not fully and clearly adhere to the rules and conditions envisaged by the prudential boundary defined in
Part Three, Title I, Chapter 3 of Regulation (EU) No 575/2013 (CRR). In all these cases, the ad￾justments to the FC should be limited to the amount of P&L related to risks effectively covered
by the hedge, and matching the accounting P&L of the hedged items. Moreover, in such cases,

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK the institution’s policies, procedures, systems and controls should be able to disentangle the profit and loss of hedged instruments and related hedges, connecting the latter to the hedged risks and to document the hedging relationship, in line with the risk management objectives of the institution.
30. To ensure coherence in the application of the rules within a group, the legal text was amended
to further clarify that partial use of the PBA in combination with the AA is not feasible. Through￾out the three-year horizon for the calculation of the BI, an institution at solo level cannot alter￾nate the approaches, and neither can a group at consolidated level. This does not pre-empt the use of the AA at solo level for institutions in a group and the use of PBA at group (consolidated) level, or vice versa. In order to provide further clarity on the ex ante notification, the legal text was amended to distinguish what information and documentation is referring only to the initial adoption of the PBA, and what should instead be regularly reviewed (and potentially updated). Moreover, it was clarified that the time period of 90 days envisaged by the ex ante notification starts from the submission to the competent authority of the information and documentation in a complete manner.
31. Finally, on 24 July 2024,the European Commission adopted a Delegated Act4 in accordance with
Article 461a of Regulation (EU) No 575/2013 (CRR) that, upon entry into force, would defer the
application of the Fundamental Review of the Trading Book (FRTB) standards for the calculation of own funds requirements for market risk in the European Union for one year. The EBA has subsequently issued a ‘no action letter’5 that complements the Delegated Act by advising com￾petent authorities not to prioritise any supervisory or enforcement action in relation to the ap￾plication of the provisions on the boundary between the non-trading and the trading book until the entire FRTB standard is implemented in the EU and is used for calculating own funds require￾ments for market risk. This letter also clarifies that, with regards to the use of the prudential boundary approach for the purposes of calculating the own funds requirements for operational risk, institutions should use the same boundary definition as they apply for the purposes of cal￾culating the own funds requirements for market risk. Once the no action letter ceases to apply, institutions that used the prudential boundary approach during the postponement period are expected to review the information on the use of this approach in line with the forthcoming associated regulatory technical standards and resubmit the corresponding notification. Items excluded from the BI in line with Article 314(9)(b) of the CRR
32. Article 314(9)(b) of the CRR requests the EBA to draft RTS to further specify the elements that
institutions do not have to use in the calculation of the BI, thus detailing those listed in Arti￾cle 314(7) of the CRR.
33. While some of these elements are easily identifiable in the financial statement, other elements
would benefit from additional detail. Indeed, the income and expenses from insurance or rein￾surance business to be excluded from the calculation of the BI, as referred to in Article 314(7)(a) of the CRR, are those where an institution takes the insurance risk. Where instead an institution sells or distributes insurance products or services to its clients, the income and expenses are to be included within the BI, since these products or services are conceptually not different, from an operational risk perspective, from financial products or services. 4 Capital Requirements Regulation – European Commission 5 FRTB postponement – Technical issues and Supervisory Benchmarking.pdf

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK
34. Moreover, certain financial impacts related to lease assets or resulting from operational risk
events, or outsourcing fees paid for the supply of financial services, might be accounted for un￾der some items (administrative expenses, including staff expenses, depreciation of tangible as￾sets, amortisation of intangible assets, impairment or reversal of impairment) that, in accord￾ance with Article 314(7) of the CRR, should not contribute to the BI. In such cases, those financial impacts shall not be excluded from the calculation of the BI.
35. With specific regard to exclusions of elements from the BI, the CRR does not envisage the ge￾neric exclusion of extraordinary or irregular items from the BI. Article 314(7) of the CRR states
that OI or OE should be calculated using the institution’s income or the institution’s expenses and losses from ordinary banking operations not included in other items of the business indica￾tor, but which are of similar nature. ‘Ordinary banking operations’ refer to ‘business as usual’ banking operations; hence the income and expenses generated in the course of such operations, irrespective of whether labelled as ordinary or extraordinary, need to be included in the most appropriate items of the institution’s P&L statement, in line with the criteria established by IAS, IFRS or, in general, national General Accepted Accounting Principles (nGAAP) standards. These income and expenses should then be included into the BI, having regard to the qualifications set out in Article 314(10) of the CRR, as further specified in these RTS/ITS. Draft regulatory technical standards on the adjustments to the busi￾ness indicator under Article 315(3)(a), (b) and (c) of the CRR
36. Article 314 of the CRR provides that each component of the BI is calculated as ‘the annual aver￾age over the last three financial years’, meaning that the operational risk capital requirements
are the same from 31/12 of year N-1 to 30/09 of year N, and shall be calculated based on N-1 to N-3 audited financial statements of the institution, as illustrated in Figure 1 below:
Figure 1: Timeline for calculation of operational risk capital requirements (OPCR)
37.
38. The operational risk capital requirements aim to capture and cover the risks related to opera￾tional failure or deficiencies arising from the conduct of activities (unexpected losses over a one￾year horizon, in principle). The use of averages in the context of the calculation aims to avoid
excessive volatility of the capital charge for operational risk. However, it is acknowledged that, from a risk perspective, the merger, acquisition or disposal of entities or activities may affect the operational risk profile of the institutions and may not be sufficiently reflected under the

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK standard methodology. Moreover, the changes in operational risk exposures may require differ￾ent approaches, and not necessarily on a symmetrical basis, for mergers and acquisitions as compared to disposals.
39. On the basis of the considerations above, and in accordance with the Basel framework, Arti￾cle 315 of the CRR requires institutions to include items related to merged or acquired activities
and entities in their BI and allows institutions, subject to permission by the competent authority, to exclude items related to disposed activities and entities.
40. For the application of these provisions, the EBA was mandated in Article 315(3) of the CRR to
specify ‘how institutions are to determine the adjustments to the business indicator’ (point (a) referencing mergers, acquisitions and disposals), ‘the conditions under which competent author￾ities are able to grant the permission’ and ‘the timing for the adjustments’ (points (b) and (c) referencing disposals only).
41. Given the above-mentioned points, it is important to ensure, through the provisions of these
RTS, that the methods for determining adjustments in cases of mergers or acquisitions, and the conditions under which an entity or an activity can be excluded, are tailored to the institution’s effective risk profile while ensuring both sufficient harmonisation across the EU and realistic operational implementation. To achieve those objectives, the following aspects were especially considered by the EBA when drafting the RTS:
42. Calculation of the business indicator adjustment: The determination of the adjustment value
should consider that historical information related to purchased entities or activities may not be available or accurate. While the principle will be to use the audited financial information over the past three years, the RTS should provide for an alternative simplified measure that should nonetheless be conservative enough. Thus, to ensure sufficient harmonisation, ranked alterna￾tive calculation approaches have been defined. These alternative approaches should only apply for mergers and acquisitions, given that, for disposals, the institution has the information to precisely determine which items should be excluded.
43. Conditions for granting permission to exclude disposed entities and activities: In the context of
disposals of entities or activities, and while the activities are transferred, specific arrangements may have been entered into in order for the disposing entity to provide any compensation for losses or future liabilities which could arise from events that took place prior to the transaction and which were not known at the time of the transaction. The disposing entity may also face additional operational risks related to possible reorganisation aspects of the operation (e.g. re￾duction of resources dedicated to operational risk management, business restructuring). There are therefore situations in which it may not be considered reasonable for an institution to ex￾clude items of a disposed entity from its BI and operational risk capital requirements. It is also important to consider the costs and benefits of the granting process to get adjustments to the BI with respect to the capital relief caused by those adjustments. Calculation of the business indicator adjustment a. In the context of mergers and acquisitions
44. Article 315(1) of the CRR states that ‘Institutions shall include business indicator items of
merged or acquired entities or activities in their business, and shall cover the last three financial years’, which therefore implies in principle, for any acquisition or merger, establishing revised

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK ‘pro forma’ financial statements as if the entity were part of the group or institution concerned for the three previous exercises, as shown in the example in Table 1 below:
Table 1: Illustration of calculation
45. Institutions would then have to ‘rebuild’ historical financial data for the three previous years
for each acquisition, as shown in Table 2:
Table 2: Illustration of a rebuild of historical financial data
46. However, as shown by past decisions adopted by competent authorities in application of the
former Articles 315 and 317 of the CRR, the historical data related to the acquired entity may not be available or may not be accurate. In these cases, various approaches were used and ap￾proved in the absence of sufficiently reliable data (i.e. in the absence of audited financial state￾ments covering the perimeter of the operation for the full three years, difficulties in establishing pro forma accounts, or in the case of accuracy issues). In all cases though, the objective was to ensure that the approach followed was conservative. Acquisition in May 2024
30.6.2024 31.12.2024 31.12.2025 31.12.2026
indicator T-1 2023 pro forma ac￾counts
2024 (financial state￾ments including the ac￾quisition are available, no adjustments needed) 2025 (financial state￾ments including the ac￾quisition are available, no adjustments needed) 2026 (financial state￾ments including the ac￾quisition are available, no adjustments needed) indicator T-2 2022 pro forma ac￾counts 2023 pro forma accounts 2024 (financial state￾ments including the ac￾quisition are available, no adjustments needed) 2025 (financial state￾ments including the ac￾quisition are available, no adjustments needed) indicator T-3 2021 pro forma ac￾counts 2022 pro forma accounts 2023 pro forma accounts 2024 (financial state￾ments including the ac￾quisition are available, no adjustments needed)

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK
47. Given the above approaches and options, while also considering the potential difficulties in re￾trieving the historical data for certain operations, and taking into account the responses to the
CP, the following approach is implemented:
a. Main principle: use of the three-year historical data (audited financial statements or, for the acquisition of activities, pro forma financial statement used for the anal￾ysis and valuation of the operations, i.e. financial information presented to the in￾stitution’s highest governance body that definitively authorises the operation); b. Alternative to main principle: in cases where institutions prove that the three years of historical data are not available, or in cases where institutions prove that the historical data available are not accurate (e.g. the acquired entity has transferred
part of its activities prior to the transaction), institutions are required to use the
ranking approach described in the next paragraphs.
48. Firstly, institutions could use, as a provisional proxy of the BI, the institution BIC multiplied by
the M&A factor calculated on the basis of the most recent financial information available and accurate in relation to that entity or activity, including the annualised ongoing financial exercise:
𝑀𝑀&𝐴𝐴 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝑁𝑁𝑁𝑁 𝑂𝑂𝑂𝑂 𝑂𝑂𝑂𝑂 𝑂𝑂 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 +𝐸𝐸 𝐸𝐸/𝐴𝐴 𝐴𝐴 𝑁𝑁𝑁𝑁 𝑂𝑂𝑂𝑂 𝑂𝑂𝑂𝑂 𝑂𝑂 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝑁𝑁𝑁𝑁 𝑂𝑂𝑂𝑂 𝑂𝑂𝑂𝑂 𝑂𝑂 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 , where the Net Operating Income (NOI) has the same meaning as ‘net total operating income’ as in Commission Implementing Regulation (EU) 2021/451, i.e. it is indicated by the FINREP item:
F02.00_r355_c 010.
49. Then, if this ’M&A factor’ approach is not feasible due to lack of data, the institution shall use
financial forecasts in relation to that entity or activity based on information used for the final valuation (see illustration in Table 4).
50. Tables 3 and 4 below illustrate the calculation under the two ranked alternative approaches in
paragraphs 42 and 43:
51.
52.
53.
54.
55.
56.
57.
58.
59.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK 60.Table 3: Illustration of expected calculation under paragraph 50 (use of M&A scaling factor)6 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 6 For the purposes of this illustration, if the NOI of the acquiring institution is 100 (31.12.2023) and that of the acquired entity is 20 (31.12.2023), the M&A factor would be 1.2. Acquisition in May 2024, the last available infor￾mation (although not audited) for the acquired entity is at Dec 2023
30.6.2024 31.12.2024 31.12.2025 31.12.2026
indicator T-1
2023 Insti￾tution business indicator multiplied by 1.2 2024 (finan￾cial state￾ments in￾cluding the acquisition are availa￾ble, no ad￾justments needed) 2025 (finan￾cial state￾ments in￾cluding the acquisition are availa￾ble, no ad￾justments needed) 2026 (financial statements including the acquisition are available, no adjustments needed) indicator T-2 2022 Insti￾tution business indicator multiplied by 1.2 2023 Institu￾tion busi￾ness indica￾tor multi￾plied by 1.2 2024 (finan￾cial state￾ments in￾cluding the acquisition are availa￾ble, no ad￾justments needed) 2025 (financial statements including the acquisition are available, no adjustments needed) indicator T-3 2021 Insti￾tution business indicator multiplied by 1.2 2022 Institu￾tion busi￾ness indica￾tor multi￾plied by 1.2 2023 Institu￾tion busi￾ness indica￾tor multi￾plied by 1.2 2024 (financial statements including the acquisition are available, no adjustments needed)

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK 72. 73.Table 4: Illustration of expected calculation under paragraph 51 (use of forecasts) Acquisition in May 2024, information related to 2023, 2022, 2021 not available for acquired en￾tity.
30.6.2024 31.12.2024 31.12.2025
indicator T-1
Acquiring institution 2023 au￾dited + Inclusion of acquired entity BI items based on aver￾age forecast 2024–2025– (instead of 2023) 2024 (financial statements in￾cluding the acquisition are available, no adjustments needed) 2025 (financial statements in￾cluding the acquisition are available, no adjustments needed) indicator T-2 Acquiring institution 2022 au￾dited + Inclusion of acquired entity BI items based on aver￾age forecast 2024–2025– (instead of 2022) Acquiring institution 2023 au￾dited + Inclusion of acquired entity BI items based on aver￾age 2024 realised and fore￾cast 2025–2026 (instead of 2023) 2024 (financial statements in￾cluding the acquisition are available, no adjustments needed) indicator T-3 Acquiring institution 2021 au￾dited + Inclusion of acquired entity BI items based on aver￾age forecast 2024–2025– (instead of 2021) Acquiring institution 2022 au￾dited + Inclusion of acquired entity BI items based on aver￾age 2024 realised and fore￾cast 2025–2026 (instead of 2022) Acquiring institution 2023 au￾dited + Inclusion of acquired entity BI items based on aver￾age 2024 and 2025 realised and forecast 2026 (instead of 2023) b. In the context of disposals
74. For disposed activities or entities, the information over the past three years is available. The
principle should therefore be to reflect the disposal in the BI covering the three-year period that is relevant (no impact on the full period if the entity or the activity was initiated, created, or purchased during the three-year period). The items related to the disposed entity must, how￾ever, be adjusted if the historical financial statements are not accurate due to restructuring op￾erations conducted prior to the disposal and resulting in maintaining part of the activity within the disposing institution. Conditions under which permission to exclude BI items related to disposed entities or activities may be granted
75. Based on the competent authorities’ decisions adopted for the application of Articles 315(3)
and 317(4) of CRR2, it appears that the review was mainly focused on the calculation of adjust￾ments and the materiality of the adjustment. but in the assessment it is observed that additional information on the actual level of operational risk losses and in relation to possible future liabil￾ities were also considered and analysed.
76. Based on developments in the introduction, and also considering those competent authorities’
decisions, and to assess the opportunity to grant permission to exclude a disposed entity or activity from the BI, the competent authority should especially consider:
a. Operational losses: how that entity or activity contributed to the institution’s op￾erational risk losses in the past;

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK b. Guarantee commitment and future liabilities: whether the transaction agree￾ments or any side agreements provide that the disposing institution or disposing group is committed to providing any compensation for losses or future liabilities which could arise from events that took place prior to the transaction and are not known at the time of the transaction;
77. Operational risk exposures: whether the disposal results in significant additional exposure to
operational risk or a change in operational risk management structure that would undermine its capacity to identify, measure and mitigate the operational risk (e.g. change in IT systems, trans￾fer of resources, and other reorganisation aspects after the transactions).
78. Finally, in order to permit appropriate scrutiny of the operations by the competent authorities,
the institutions should submit, together with the application, the following documentation or information:
a. The description of the operation, its rationale, and its implementation dates.
79. The quantitative impact analysis of the operation on operational risk capital requirements in
accordance with the methodology established under Article 2 of this Regulation and any sup￾porting evidence, including audited financial statements and pro forma financial statements es￾tablished by an independent auditor:
a. The detail of operational risk losses related to the entity or activity disposed of over the last 10 years, where available;.
80. The terms and conditions of the disposal, including any side agreements, as well as a legal anal￾ysis regarding liabilities that may be incurred from events that took place prior to the transac￾tion:
a. The confirmation that the operation has been approved by the management body and the date of approval; b. The analysis of the impact of the operation on the operational risk management structure of the institution.
81. Any additional document or information that the institution considers useful to establish that
the entity or activities disposed of are no longer deemed relevant to the institution’s risk profile. Timing for adjustments
82. To ensure timely consideration of the institution risk profile change, the BI should be updated
at the first reference date after the acquisition or merger becoming effective. For the disposal of an entity or activity, and subject to authorisation being granted, the BI should be adjusted at the first reference date after the authorisation is received or at the first reference date after the disposal becomes effective (if the authorisation is provided before the completion of the oper￾ation). Materiality
83. In line with the CRR, the adjustments to the BI due to mergers and acquisitions are systematic
and should happen after each operation. This is why no materiality threshold is included in the

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK draft legal text. Nonetheless, for some institutions, multiple mergers, acquisitions and disposals take place throughout the year, which requires multiple adjustments to the BI based either on financial information over the last three years or on proxy data when a full three-year historical data series is not available. Considering that adjustments to the BI would occur for every acqui￾sition, merger or disposal, more information has also been gathered via the consultation process for these RTS, concerning their frequency and impact on the operational risk capital require￾ments.
84. Regarding mergers and acquisitions, the complexity of the adjustments to the BI due to M&As
lies in the methodology used to carry out the adjustments. Given the simplified methodology to be used in case of adjustments, particularly in case of data unavailability, as presented in para￾graphs 41 to 47 of this final report, coupled with the fact that a materiality threshold for adjust￾ments to the BI due to M&As would only delay the impact on capital requirements for a period of one to three years, the EBA has deemed it unnecessary to introduce such a threshold. In addition, the administrative burden on institutions would be only slightly reduced in case of an M&A threshold, since adjustments would have to be computed anyway, to determine whether the threshold has been crossed.
85. With regards to disposals, and in line with the CRR, institutions may choose not to ask for per￾mission from their CA to adjust the BI following disposal(s). In this case, they are not allowed to
reflect the disposal(s) in the calculation of capital requirements. Those wishing to reflect dis￾posal(s) in their capital requirements calculation need to ask for permission from their CA. As it is understood that the process of requesting permission to reflect individual disposals may be cumbersome for institutions and their CAs, it was considered reasonable to have a threshold for determining the materiality of the divestments.
86. To maintain a proportionate approach, this threshold is defined as a threshold below which the
permission to adjust can be considered granted if the CA does not reply within 90 days of the request for permission. This decision is supported by the fact that it contributes to streamlining the administrative process post-disposal, and it adds clarity regarding the timing for reflecting the disposals for institutions looking to do so for disposals with small NOI impact.
87. The total annual net operational impact of disposals to be compared to the threshold should be
an aggregate, over the same fiscal year, of disposals carried out by an institution:
88.𝐼𝐼𝐼𝐼𝐼𝐼 𝑓𝑓 𝑓𝑓 = ∑ 𝐼𝐼𝐼𝐼𝐼𝐼 =1 , 89.where i is a disposal carried out by the institution during the fiscal year.
90. The net operational impact of a disposal is calculated by following the formula:
91.𝐼𝐼𝐼𝐼𝐼𝐼 = 𝑁𝑁𝑁𝑁 𝑑𝑑 𝑑𝑑 entity/ /𝑁𝑁𝑁𝑁 𝑑𝑑 92.where the NOI is the Net Operating Income, as defined in paragraph 50 (i.e. ‘Total operating income, net’ – FINREP item: F02.00_r355_c 010).
93. Finally, the threshold is set at 5% of the total annual net operational impact of disposals. Based
on the data received via the EU-specific template of the Basel III monitoring exercise, a threshold of 5% would correspond to more than two thirds of potential requests and reflects a maximum

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK estimated amount of less than 1% of capital requirements for operational risk, which means a very marginal impact on the total capital requirements7 . Draft implementing technical standards on the mapping of the busi￾ness indicator components with corresponding supervisory reporting references under Article 314(10) of the CRR
94. Article 314(10) mandates the EBA to draft implementing technical standards (ITS) to specify the
items of the BI by mapping those items with the corresponding reporting cells in Commission Implementing Regulation (EU) 2021/451 (FINREP).
95. In the above-mentioned advice to the Commission for the adoption of the CRR, the EBA already
proposed a detailed mapping of the BI items to the FINREP items (see Annex 3, Table 13). This proposal was motivated, on one hand, by the need to ensure a harmonised interpretation and adoption of the BI across the EU, and, on the other hand, to limit its implementation/adminis￾trative/operational costs for the EU institutions.
96. The choice of FINREP was motivated by the fact that FINREP templates are developed to ac￾count for both the IFRS and for national accounting frameworks (nGAAP). In these draft ITS,
some limited changes are suggested to make them fully aligned with the institutions’ practice for reporting the various BI items according to the FINREP standards.
97. Consistently, the mapping envisaged in the EBA advice, as amended to consider recent changes
in the IFRS, has been the reference used to address the mandate granted to the EBA in Arti￾cle 314(10) of the CRR.
98. Therefore, these draft ITS provide the references of the BI items to the FINREP items. Such ref￾erences can be exact or, for certain BI items, approximate, owing to the adjustments to be made
to the FINREP itemsto reflect the qualifications envisaged by the CRR for the calculation of those BI items.
99. Given the strong ties between these ITS and the RTS on BI components, feedback from the
consultation is often intertwined between the two topics, and the associated answers and clar￾ifications from the EBA bring clarity both from a policy standpoint as well as from a mapping perspective. Changes were subsequently made to the ITS on mapping to ensure consistency with the RTS on BI components. 7 Assumption: the NOI is used as a proxy for BIC, which implies that the maximum impact on the BIC is 18% x 0.05=0.9%. Considering the typical impact of operational risk on total RWAs, this would mean a very marginal impact on total RWAs.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK
3. Draft regulatory technical standards on
the components of and the elements to be excluded of the Business indicator un￾der Article 314(9) of the CRR and draft regulatory technical standards on the ad￾justments to the business indicator under
Article 315(3)(a), (b) and (c) of the CRR

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK EBA/RTS/20XX/XX DD Month YYYY COMMISSION DELEGATED REGULATION (EU) …/… of XXX supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards specifying the components of the business indicator, their use and the elements excluded from the calculation and with regard to regulatory technical standards specifying the adjustments to the busi￾ness indicator in case of mergers, acquisitions or disposals (Text with EEA relevance) THE EUROPEAN COMMISSION, Having regard to the Treaty on the Functioning of the European Union, Having regard to Regulation (EU) No 575/2013 as amended by Regulation (EU) 2024/1623 of the European Parliament and of the Council of 31 May 2024 as regards requirements for credit risk, credit valuation adjustment risk, operational risk, market risk and the output floor8 , and in particular third subparagraph of Article 314(9) and third sub￾paragraph of Article 315(3) thereof, Whereas:
(1) The business indicator is a financial statement-based proxy for operational risk. The items representing ordinary banking business operations in an institution’s profit and loss statement or balance sheet statement should be included within this indicator. El￾ements to be excluded from the BI are only those provided for in Regulation (EU) No 575/2013 and further specified in these RTS. (2) Since the fourth subparagraph of Article 314(2) of Regulation (EU) No 575/2013 re￾quires institutions to include all income and expenses arising from financial and oper￾ating leases in the interest and leases component, including depreciation and impair￾ment, the items related to leases included in the interest and leases component of the BI should be aligned with those in International Financial Reporting Standards (IFRS)
16. Accordingly, all income and expenses from investment properties that generate
rents, including rental income from investment properties, should be included within the interest and leases component. 8 OJ L, 2024/1623, 19.6.2024.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK (3) In order to ensure consistency with the international accounting standards, the asset component referred to in the fifth subparagraph of Article 314(2) of Regulation (EU) No 575/2013 should be calculated as the sum of the gross carrying amounts, the car￾rying amount or the fair value of certain balance sheet assets, depending on the type of assets. Given that the asset component contributes to the calculation of the interest, leases, and dividends component, it should include all the assets on the balance sheet that generate interest income and/or interest expenses. (4) The fifth subparagraph of Article 314(5) of Regulation (EU) No 575/2013 requires institutions to include in the other operating expenses the institution’s expenses and losses from operational risk events. Since operational risk events can take several forms in an institution’s financial statement (e.g. expenses, losses, provisions, impair￾ment, depreciation), the other operating expenses should be fed with all the impacts of operational risk events, however labelled or accounted, affecting an institution’s fi￾nancial statement. Such expenses should be net of recoveries other than insurance and reinsurance; however, they should not be net of any related payments received from insurance or reinsurance policies purchased, and should include exceptional losses that, following the permission given by the competent authority pursuant to Arti￾cle 320(1) of that Regulation, can be excluded from the calculation of the institution’s annual operational risk loss. (5) In order to obtain proper and exhaustive information on where the financial impacts of operational risk events are accounted for in an institution’s financial statement, those financial impacts should be broken down by the main items of the profit and loss statement where these impacts are accounted for. (6) Certain types of operations or accounting choices, including the economic hedging of fair value through profit and loss positions, and the bifurcation of derivatives embed￾ded in host hybrid or structured financial instruments, may cause an unwarranted in￾crease in the financial component, whose formula envisages the sum of the absolute values of the profit and loss of the trading book component and of the banking book component. In the economic hedging, the unwarranted increase is due to the presence of types of operations that are strictly related to each other and which are of opposite profit and loss sign, however, they are accounted for in different components of the business indicator (i.e. the trading book component and the banking book component) when calculated in accordance with the international accounting standards; hence the amounts of these operations cannot be netted when computed within the financial com￾ponent. In such cases, institutions should be allowed to adopt the prudential boundary approach, i.e. to calculate the financial
component in accordance with Part Three, Ti￾tle I, Chapter 3 of Regulation (EU) No 575/2013. Under the prudential boundary ap￾proach, these operations would be treated as being under the same book (i.e. the pru￾dential trading book or the prudential non-trading book); hence their amounts would be offset within the financial component, consistently with their underlying economic rationale. (7) In order to prevent the improper use of the prudential boundary approach, the concept of ‘unwarranted increase’ in the case of economic hedging should not be extended to the profit and loss of hedging instruments in the trading book which are not strictly and clearly related to the profit and loss of hedged instruments in the non-trading book valued at fair value through profit and loss in the accounting statement of profit and

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK loss, or to situations where the institution does not fully and clearly adhere to the rules and conditions envisaged by the prudential boundary defined in Part Three, Title I,
Chapter 3, of Regulation (EU) 575/2013. Furthermore, adjustments to the financial
component should be limited to the amount of profit and loss related to risks effec￾tively covered by the hedge, and matching the accounting profit and loss of the hedged items. (8) Institutions that intend to adopt the prudential boundary approach should be able to calculate the profit and loss of all the positions held in the prudential trading book and the prudential non-trading book, over the three years envisaged for the calculation of the financial component. In case of economic hedging, institutions should be able to disentangle the profit and loss of hedged instruments and related hedges, connecting the latter to the hedged risks, and to document the hedging relationship in line with the risk management objectives of the institution. These calculations are different from the calculation carried out under the accounting approach and are not based on harmo￾nised accounting standards nor subject to periodic supervisory reports. As a conse￾quence, only institutions that have in place policies, procedures, systems and controls to carry out such calculations in a proper manner, including the disentanglement of the profit and loss amounts in case of economic hedging, and to properly document them, should be allowed to adopt the prudential boundary approach. (9) In order to prevent regulatory arbitrage through the selected use of the prudential boundary approach in some years of the calculation, or in some entities of the same group, the prudential boundary approach should be applied for all three years envis￾aged in the calculation of the business indicator; moreover, the partial use of the pru￾dential boundary approach in combination with the accounting approach should not be feasible. (10) In order for the competent authorities to review the adoption of the prudential bound￾ary approach, the institutions intending to adopt it should provide them with adequate documentation and information prior to its implementation. (11) Where any condition allowing for the adoption of the prudential boundary approach is no longer met, the institution should revert to the accounting approach. In order to prevent regulatory arbitrage, too-frequent switches from one approach to the other should be discouraged. (12) As required by Article 314(9), point (b) of Regulation (EU) No 575/2013, and with a view to ensuring clarity and consistency in the calculation of the business indicator, some of the elements to be excluded from that calculation listed in Article 314(7) of that Regulation should be further specified. (13) All income and expenses where an institution sells or distributes insurance or reinsur￾ance products or services should not be excluded from the calculation of the business indicator, since these products or services are – from an operational risk perspective – conceptually no different from financial products or services whose income and ex￾penses stemming from their distribution are included within the business indicator, typically under fee and
commission income or fee and commission expenses. (14) Certain financial impacts related to lease assets or resulting from operational risk events, or the outsourcing fees paid for the supply of financial services, might, in spe￾cific cases, be accounted for under the following items, listed in Article 314(10) of

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK Regulation (EU) No 575/2013: administrative expenses, including staff expenses, de￾preciation of tangible assets, amortisation of intangible assets, impairment or reversal of impairment. In such cases, those financial impacts should not be excluded from the calculation of the business indicator. (15) In the case of acquisitions, mergers or disposals, the consideration of a three-year pe￾riod based on financial statements for the calculation of the business indicator may lead to a potential divergence between the capital requirements for operational risk and the effective risk profile of a given institution. The method for determining the busi￾ness indicator’s adjustment in the case of mergers, acquisitions or disposals, and the conditions under which a disposed entity or an activity can be excluded, should ensure better alignment between the institution’s capital requirements and the institution’s effective risk profile. (16) In principle, given that the business indicator is a financial statement-based proxy for operational risk, its adjustment following mergers or acquisitions should be based on the audited financial statement of the merged or acquired entities or activities. How￾ever, institutions may experience difficulties in retrieving a historical series of accurate data related to the merged or acquired entities or activities over the three-year period to be considered for reflecting the operation. Therefore, institutionsshould be provided with possible alternative calculation options that are conservative enough, in cases where the historical data relating to the acquired or merged entity or activities over is not available or accurate to cover the full period that is relevant to the calculation of its business indicator. (17) The disposal of a business or of an entity may not always imply that the operational risk related to the disposed entity or activities is fully transferred to the acquiring en￾tity. For instance, the terms and conditions of the disposal may provide for an indem￾nity arrangement in case of new liabilities or losses arising from operational risk events occurring prior to the transaction. Therefore, in the case of disposals, the conditions under which permission by the competent authorities may be granted should, in par￾ticular, aim to ensure that the entity or activity disposed is no longer deemed relevant to the institution’s risk profile. (18) This Regulation is based on the draft regulatory technical standards submitted to the Commission by the European Banking Authority. (19) The European Banking Authority has conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the poten￾tial related costs and benefits, and requested the advice of the Banking Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1093/2010 of the European Parliament and of the
Council9 , HAS ADOPTED THIS REGULATION:
9 Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a Eu￾ropean Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing Com￾mission Decision 2009/78/EC (OJ L 331 du 15.12.2010, p. 12–47).

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK
Chapter 1
INTEREST, LEASES AND DIVIDEND COMPONENT
Article 1
Interest income
The interest income shall be calculated as the sum of the following items:
a) interest income from financial assets held for trading, b) interest income from non-trading financial assets mandatorily at fair value through profit or loss, c) interest income from financial assets designated at fair value through profit or loss, d) interest income from financial assets at fair value through other comprehensive income, e) interest income from financial assets at amortised cost, f) interest income from hedge accounting – interest rate risk derivatives, g) interest income on other assets, h) interest income on liabilities, i) income on operating leases, including rental income from investment property, j) income from changes in fair value in investment properties that generate rents and are measured using the fair value model, k) profits from leased assets, including gains from lease modifications.
Article 2
Interest expenses
The interest expenses shall be calculated as the sum of the following items:
a) interest expenses from financial liabilities held for trading, b) interest expenses from financial liabilities designated at fair value through profit or loss, c) interest expenses from financial liabilities measured at amortised cost, d) interest expenses from hedge accounting – interest rate risk derivatives, e) interest expenses on other liabilities, f) interest expenses on assets, g) operating leasing expenses, including direct operating expenses from investment property that generate rents, h) expenses from changes in fair value in investment properties that generate rents and are measured using the fair value model, i) losses from operating leased assets, j) depreciation and impairment or reversal of impairment of operating leased assets whose income or expenses are included in the calculation of the interest and leases component. The above items shall not include any expense due to operational risk events, which shall be instead included in Article 6(1) (d) (i).

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK
Article 3
Asset component
The asset component shall be calculated as the sum of the following items:
a) gross carrying amount of cash balance at central banks and other demand deposits, b) gross carrying amount of debt securities, c) gross carrying amount of loans and advances, d) fair value of derivatives classified as financial assets at the reference date for the calculation of the asset component, as long as the flows from such derivatives have been recognised during the financial year in the interest component; both trading and economic hedges and hedge accounting shall be included, e) carrying amount of tangible assets and intangible assets subject to lease.
Article 4
Dividend component
The dividend component shall include dividend income from equity instruments and investments.
Chapter 2
SERVICES COMPONENT
Article 5
Other operating income
Other operating income shall be calculated as the sum of the following items, which shall not in￾clude recovery of administrative expenses:
a) income from changes in fair value in tangible assets measured using the fair value model, except income from changes in fair value in investment properties that generate rents and are measured using the fair value model, b) income from other income not due to leases, c) profit from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations.
Article 6
Other operating expenses

1. The other operating expenses shall be calculated as the sum of the following items:
   a) expenses from changes in fair value in tangible assets measured using the fair value model, except expenses from changes in fair value in investment properties that generate rents and are measured using the fair value model, b) expenses from other expenses, not due to operational risk events and not due to financial leases,

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK c) losses from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations, d) losses, expenses, provisions and other financial impacts due to operational risk events accounted for in any items of the profit and loss statement, including those accounted for in the following items:
i. interest expenses,
ii. other operating expenses,
iii. staff expenses,
iv. other administrative expenses,
v. depreciation,
vi. provisions or (-) reversals of provisions,
vii. impairment or (-) reversal of impairment.
2. For the purposes of point (d), the losses, expenses, provisions and other financial impacts due to
operational risk events:
a) shall be net of related payments received from other than insurance or reinsurance policies purchased, b) shall not be net of any related payments received from insurance or reinsurance policies purchased, and c) shall include those exceptional losses that, following the permission given by the competent authority pursuant to Article 320(1) of Regulation (EU) No 575/2013, can be excluded from the calculation of the institution’s annual operational risk loss.
Article 7
Fee and commission income component
The fee and commission income component shall include income from ancillary activities to the financial services, such as income from IT activities necessary to execute a financial service, and shall be calculated as the sum of the following items:
a) fee and commission income from securities, b) fee and commission income from corporate finance, c) fee and commission income from fee-based advice, d) fee and commission income from clearing and settlement, e) fee and commission income from asset management, f) fee and commission income from custody, g) fee and commission income from central administrative services for collective investment, h) fee and commission income from fiduciary transactions, i) fee and commission income from payment services, j) fee and commission income from customer resources distributed but not managed, k) fee and commission income from structured finance, l) fee and commission income from loan servicing activities, m) fee and commission income from loan commitments given, n) fee and commission income from financial guarantees given, o) fee and commission income from loans granted, p) fee and commission income from foreign exchange,

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK q) fee and commission income from commodities, r) other fee and commission income.
Article 8
Fee and commission expenses component
The fee and commission expenses shall include the expenses from ancillary activities to the financial services, such as expenses from IT activities necessary to execute a financial service, and shall be calculated as the sum of the following items:
a) fee and commission expenses from securities, b) fee and commission expenses from clearing and settlement, c) fee and commission expenses from asset management, d) fee and commission expenses from custody, e) fee and commission expenses from payment services, f) fee and commission expenses from loan servicing activities, g) fee and commission expenses from loans commitments received, h) fee and commission expenses from financial guarantees received, i) fee and commission expenses from externally provided distribution of products, j) fee and commission expenses from foreign exchange, k) other fee and commission expenses.
Chapter 3
FINANCIAL COMPONENT
Article 9
Calculation of the financial component
Institutions shall calculate the financial component by using one of the following approaches:

1. the ‘accounting approach’ under which they determine the financial component in accordance
   with Articles 10 and 11 on the basis of the applicable accounting framework;
2. the ‘prudential boundary approach’ under which they determine the financial component in
   accordance with Article 12 of this Regulation on the basis of the prudential boundary set out in Part Three, Title 1, Chapter 3, of Regulation (EU) No 575/2013), provided that all of the following conditions are met:
   a) certain types of operations performed, or accounting choices adopted, including the eco￾nomic hedging of fair value through profit and loss positions or the bifurcation of deriva￾tives embedded in host hybrid or in structured financial instruments, result in an unwar￾ranted increase of the financial component when using the accounting approach; b) the institution has in place policies, procedures, systems and controls to disentangle the profit and loss of hedged instruments and related hedges, connecting the latter to the hedged risks, and to properly calculate the profits and losses of the prudential trading book and the prudential non-trading book;

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK c) the internal procedures and systems are able to document the hedging relationship based on risk management objectives and choices as well as their changes over time, duly doc￾umented and justified in a timely manner by the risk appetite of the institution; d) the adjustments to the financial component are restricted to the amount of profit and loss related to risks effectively covered by the hedge and matching the accounting profit and loss of the hedged items.
Section 1
Calculation of the financial component according to the accounting approach
Article 10
Trading book component
The trading book component shall be calculated as the sum of the following items:
a) Gains or (-) losses on financial assets and liabilities held for trading, net; b) Gains or (-) losses from hedge accounting, net, where hedge accounting is used for hedging financial assets and liabilities held for trading; c) Exchange differences [gain or (-) loss], net, where such differences originate from financial assets and liabilities held for trading.
Article 11
Banking book component
The banking book component shall be calculated as the sum of the following items:
a) Gains or (-) losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net; b) Gains or (-) losses on non-trading financial assets mandatorily at fair value through profit or loss; c) Gains or (-) losses on financial assets and liabilities designated at fair value through profit or loss, net; d) Gains or (-) losses from hedge accounting, net, where hedge accounting is used for hedging financial assets and liabilities other than held for trading; e) Exchange differences [gain or (-) loss], net, where they originate from financial assets and liabilities other than held for trading.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK
Section 2
Calculation of the financial component according to the prudential boundary approach
Article 12
Prudential boundary approach
1. When calculating the financial component on the basis of the prudential boundary approach,
institutions shall use the items in Articles 10 and 11 with appropriate adjustments in accord￾ance with Part Three, Title I, Chapter 3 of Regulation (EU) No 575/2013.
2. The prudential boundary approach shall, where adopted, be applied consistently with the in￾stitution’s strategies, policies, procedures, systems and controls, as set out in accordance with
Part Three, Title 1, Chapter 3 of Regulation (EU) No 575/2013.
3. The prudential boundary approach shall not be used in combination with the accounting ap￾proach.
4. The prudential boundary approach shall, where adopted, be applied to all three financial years
envisaged for the calculation of the financial component.
5. Where the prudential boundary approach is applied, competent authorities shall review
whether the conditions referred to in Article 9(2) are met.
Article 13
Notification process for the use of the prudential boundary approach
1. Institutions shall notify the competent authorities of their intention to use the prudential bound￾ary approach at least 90 days before its implementation.
2. The notification of the intention to use the prudential boundary approach referred to in para￾graph 1 shall include the following information and documentation:
a) Confirmation that the use of the prudential boundary approach has been approved by the management body or by an internal committee designated by it, and the date of approval; b) The implementation date of the prudential boundary approach; c) The description of the types of operations performed or accounting choices adopted which cause the unwarranted increase in the financial component and the institution’s expecta￾tions concerning their development; d) Portfolios of the trading book component and the banking book component affected by the unwarranted increase, the value of these portfolios at the reference date of the notification, expressed as notional for derivatives, nominal for debt instruments, market value for stocks and collective investments undertaking, as well as the contribution per subsidiary to these portfolios when the notification is submitted by a consolidating entity; e) The description of the adjustments to the items in Articles 10 and 11 determined by the use of the prudential boundary approach;

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK f) The analysis of the impact of the use of the prudential boundary approach on the trading book component, the banking book component, the financial component, the business in￾dicator and the capital requirements for operational risk, at the last reporting date in com￾parison with the Accounting approach; g) The description of the policies, procedures, systems and controls referred to in Article 9(2) point (b); h) Report of the independent review of the institution’s internal or external audit on fulfilment of the conditions referred to in Article 9(2).
3. The 90-day period referred to in paragraph 1 shall start only when the information and docu￾mentation referred to in paragraph 2 is complete.
4. The institution shall update and make available to the competent authorities:
a) at least annually the documentation referred in point (2) c), e), h) and d) and f), the latter at the reference date of the update of the BI calculation, b) the documentation referred to in point (2) g) only in the event of changes during the period of use of the prudential boundary approach.
Article 14
Reversal to the accounting approach
1. Where any condition set out in Article 9(2) is no longer met, institutions shall revert to the
accounting approach.
2. Once readopted, the accounting approach shall be applied to all three financial years envisaged
for the calculation of the financial component.
3. Institutions which have reverted to the accounting approach shall not use the prudential bound￾ary approach again during the following three years.
Article 15
Notification process for the reversal to the accounting approach
1. Institutions shall notify the competent authorities of their reversal to the accounting approach
at least 90 days before its implementation.
2. The notification of the reversal to the accounting approach indicated in paragraph 1 shall in￾clude the following information and documentation:
a) Confirmation that the reversal to the accounting approach has been approved by the man￾agement body or by an internal committee designated by it, and the date of approval b) The implementation date of the accounting approach; c) Information on the conditions referred to in Article 9(2) which are no longer met; d) The analysis of the impact of the reversal to the accounting approach on the trading book component, the banking book component, the financial component, the business indicator,

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK and the capital requirements for operational risk, at the last reporting date in comparison with the prudential boundary approach; e) Report of the independent review of the institution’s internal or external audit on the points (c) and (d) above.
Chapter 4
Elements to be excluded from the business indicator
Article 16
Scope of the exclusions from the business indicator
1. The exclusions referred to in Article 314(7) Regulation (EU) No 575/2013 shall be applied as
follows:
a) for the purposes of Article 314(7) point (a) of that Regulation, income and expenses result￾ing from the distribution of insurance or reinsurance products or services shall not be ex￾cluded from the calculation of the business indicator. b) for the purposes of Article 314(7) point (c) of that Regulation, the following items, where accounted for as administrative expenses, shall not be excluded from the calculation of the business indicator:
i) outsourcing fees paid for the supply of financial services, ii) lease expenses, iii) administrative expenses, including staff expenses, resulting from operational risk events, c) for the purposes of Article 314(7) point (f) and (i) of that Regulation, the following items, where related to lease assets or resulting from operational risk events, shall not be excluded from the calculation of the business indicator:
i) depreciation of tangible assets, ii) amortisation of intangible assets, iii) impairment or reversal of impairment.
Chapter 5
Adjustments to the business indicator
Article 17
Calculation of the business indicator adjustment in case of mergers and acquisitions
1. Institutions shall include acquired or merged entities or activities items for the calculation of their
business indicator based on historical audited financial statements. For acquisitions of activities for which dedicated financial statements were not historically established, the adjustment shall be based on the historical financial information used for the final valuation of the activity acquired.
2. Where institutions prove that the historical audited financial statements or historical financial
information related to the acquired or merged activity or entity referred to in paragraph 1 are not available or accurate, institutions shall include acquired or merged entities or activities in the calculation of their business indicator using the institution’s business indicator multiplied by the

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK M&A factor, calculated on the basis of the last financial information available and accurate in relation to that entity or activity, including the annualised ongoing financial exercise:
𝑀𝑀&𝐴𝐴 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 = 𝐼𝐼𝐼𝐼𝐼𝐼 𝑁𝑁𝑁𝑁 𝑂𝑂 𝐼𝐼𝐼𝐼 𝐼𝐼 + 𝐸𝐸 𝐸𝐸/𝐴𝐴 𝐴𝐴 𝑁𝑁𝑁𝑁 𝑂𝑂 𝐼𝐼𝐼𝐼 𝐼𝐼 𝐼𝐼𝐼𝐼𝐼𝐼 𝑁𝑁𝑁𝑁 𝑂𝑂 𝐼𝐼𝐼𝐼 𝐼𝐼 where Net Operating Income (NOI) has the same meaning as in Commission Implementing Reg￾ulation (EU) 2021/451 (FINREP F02.00_r355_c010).
3. If the M&A factor approach is not feasible due to lack of data, institutions shall include acquired
or merged entities or activities in the calculation of their business indicator using financial fore￾casts in relation to that entity or activity based on information used for the final valuation.
4. The institution shall use its audited financial statements for the calculation of its business indicator
instead of the approach used under paragraph 2 as soon as the acquired or merged entity or activity is fully included in the institution’s financial statements.
5. Any business indicator adjustments made by an institution in application of this Article shall also
apply at the level of its parent undertaking subject to Regulation (EU) No 575/2013 requirements in accordance with Article 11 of that regulation.
6. Institutions shall notify their competent authority when including acquired or merged entities or
activities items in accordance with paragraphs 1 to 3. This notification shall be made 90 days prior to the inclusion of the acquired or merged entities or activities, and shall present the own funds requirements for operational risk as calculated in accordance with paragraphs 1 to 3.
Article 18
Timing for business indicator adjustments following mergers and acquisitions Where an adjustment is required in line with Article 17, the institution shall take into account the adjustment at the first applicable reporting submission date under Regulation (EU) No 2021/451 after the date from which the operation takes effect.
Article 19
Conditions and process for granting permission to exclude from the business indicator amounts related to disposed entities or activities and necessary documentation Competent authorities shall consider granting an institution permission to exclude from the busi￾ness indicator amounts related to disposed entities or activities upon analysis of the following items:
the contribution of those entities or activities to the institution’s operational risk losses over the past few years; any contractual arrangement whereby the institution or any other entity in its group under￾takes to provide the purchaser with compensation or indemnification for future losses or liabilities arising from operational risk events that occurred prior to the transaction;

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK the impact of the disposal on the institution’s operational risk management structure that would undermine its capacity to identify, measure and mitigate the operational risk, includ￾ing changes in information technology systems, transfer of resources, and any other relevant restructuring aspects. Institutions applying for the permission referred to in paragraph 1 shall submit the following documentation and information to their competent authority:
the description of the operation, its rationale and its implementation dates; the quantitative impact analysis of the operation on operational risk capital requirements in accordance with the methodology established under this Article and any supporting evi￾dence, including audited financial statements and pro forma financial statements established by an independent auditor; the detail of operational risk losses related to the entity or activity disposed over the last 10 years, where available; the terms and conditions of the disposal, including any side agreements, as well as a legal analysis regarding liabilities that may be incurred from events that took place prior to the transaction; the confirmation that the operation has been approved by the management body and the date of approval; the analysis of the impact of the operation on the operational risk management structure of the institution; any additional document or information that the institution considers useful to prove that the entity or activities disposed of are no longer deemed relevant to the institution’s risk profile. When institutions decide to request the permission referred to in Article 315(2) of Regulation (EU) 575/2013, they shall submit their complete request for permission to the relevant competent authority at least 90 days before the intended date of the adjustment of the business indicator. The relevant competent authority has 90 days from receiving the complete documentation sup￾porting a request for permission from an institution to respond in writing to this request.
Article 20
Conditions for granting permission to exclude from the business indicator amounts related to disposed entities or activities when the impact of the divestments is materially low In addition to the above, where the conditions set by Article 19(1) are met, competent authorities’ permission for adjusting the BI following a disposal shall be deemed granted where both the following conditions are met:
the sum of the net operating income (NOI) of the divested entities or activities throughout a fiscal year represents no more than 5% of the NOI of the divesting institution over the same fiscal year, and the competent authorities do not oppose the request in writing within 90 days of receiving the complete documentation supporting a request for permission from an institution. The calculation in paragraph 1(a) shall be made at the end of the preceding financial year using the amount of the NOI of the divested entities or activities and of the divesting institution.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK
Article 21
Calculation of the business indicator adjustment in case of disposals Where the permission referred to in Articles 19 or 20, as relevant, has been granted, the institution may exclude the business indicator amounts related to the disposed entities or activities for the last three financial years, based on the audited financial statements of those entities or the financial in￾formation used for the final valuation of those activities.
Article 22
Timing for business indicator adjustments in case of disposal After being granted the permission referred to in Articles 19 or 20, as relevant, institutions may adjust their business indicator in line with the provisions of Article 21. The revised operational risk capital requirements shall be reported at the following applicable reporting submission date under Regula￾tion (EU) No 2021/451.
Chapter 6
Final provisions
Article 23
Entry into force
This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. This Regulation shall be binding in its entirety and directly applicable in all Member States. Done at Brussels, For the Commission The President On behalf of the President [Position]

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK 4.Draft implementing technical standards on the mapping of the business indicator components with corresponding supervi￾sory reporting references under Arti￾cle 314(10) of the CRR

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK EBA/ITS/20XX/XX DD Month YYYY COMMISSION IMPLEMENTING REGULATION (EU)…/... laying down implementing technical standards for the application of [Regulation/Di￾rective] [serial number] of the European Parliament and of the Council with regard to (Text with EEA relevance) THE EUROPEAN COMMISSION, Having regard to the Treaty on the Functioning of the European Union, Having regard to Regulation (EU) 2024/1623 of the European Parliament and of the Council of 31 May 2024 amending Regulation (EU) No 575/2013 as regards requirements for credit risk, credit valuation adjustment risk, operational risk, market risk and the output floor10, and in particular Article 314(10) thereof, Whereas:
(1) Given that the FINREP templates laid down in Annexes III and IV of Commission Implementing Regulation (EU) 2021/451 set out the financial information to be re￾ported in accordance with IFRS and GAAP, items to be included in the calculation of the business indicator components should be mapped with the corresponding cells of those templates. (2) Given that Article 314 of Regulation (EU) No 575/2013 envisages specific qualifi￾cations for the calculation of some items of the business indicator, the above-men￾tioned mapping should specify where such qualifications are needed and where, in￾stead, the mapping with the corresponding cells of the FINREP templates is exact. (3) This Regulation is based on the draft regulatory technical standards submitted to the Commission by the European Banking Authority. (4) The European Banking Authority has conducted open public consultations on the draft implementing technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the advice of the […] Stake￾holder Group established in accordance with Article 37 of Regulation (EU) No 109x/2010 of the European Parliament and of the Council11, 10 OJ L, 2024/1623, 19.6.2024 11 Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing Com￾mission Decision 2009/78/EC (OJ L 331, 15.12.2010, p. 12–47).

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK
Article 1
The following correspondence is established between the items included in the calculation of the business indicator, as listed in the regulatory technical standards mandated in accordance with Arti￾cle 314(9) of Regulation (EU) No 575/2013 (hereinafter, ‘RTS on BI items’) and the cells of the FINREP templates laid down in Annexes III and IV of Commission Implementing Regulation (EU) 2021/451:
BI items Corresponding cells of the FINREP templates laid down in Annexes III and IV of Commission Imple￾menting Regulation (EU) 2021/451 Interest income (Article 1 of the RTS on BI items) a) interest income from financial assets held for trading F02.00_r0020_c0010 b) interest income from non-trading fi￾nancial assets mandatorily at fair value through profit or loss F02.00_r0025_c0010 c) interest income from financial assets designated at fair value through profit or loss F02.00_r0030_c0010 d) interest income from financial assets at fair value through other compre￾hensive income F02.00_r0041_c0010 e) interest income from financial assets at amortised cost F02.00_r0051_c0010 f) interest income from hedge account￾ing – interest rate risk derivatives F02.00_r0070_c0010 g) interest income on other assets F02.00_r0080_c0010 h) interest income on liabilities F02.00_r0085_c0010 i) income on operating leases, includ￾ing rental income from investment property F45.03_r0020_c0010+F45.03_r0030_c0010 For institutions not required to report the F45 tem￾plate, this can also be obtained from F02.00_r340_c0010 (only from operating leased as￾sets) by considering only the amount pertinent to the relevant item, which is described in the left column. j) income from changes in fair value in investment properties that gener￾ate rents and are measured using the fair value model F45.03_r0010_c0010 (only from leased assets) For institutions not required to report the F45 tem￾plate, this can also be obtained from F02.00_r340_c0010 (only from leased assets) by con￾sidering only the amount pertinent to the relevant item, which is described in the left column. k) profits from leased assets, including gains from lease modifications F02.00_r0425_c0010 (only from leased assets) + F45.3_r0040_c0010 (only from leased assets). The latter could also be obtained from F02.00_r340_c0010 (only from leased assets) for in￾stitutions not required to report the F45 template, by considering only the amount pertinent to the relevant item, which is described in the left column.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK Interest expenses (Article 2 of the RTS on BI items) a) interest expenses from financial lia￾bilities held for trading F02.00_r0100_c0010 b) interest expenses from financial liabilities designated at fair value through profit or loss F02.00_r0110_c0010 c) interest expenses from financial lia￾bilities measured at amortised cost F02.00_r0120_c0010 d) interest expenses from hedge ac￾counting – interest rate risk deriva￾tives F02.00_r0130_c0010 e) interest expenses on other liabilities F02.00_r0140_c0010 f) interest expenses on assets F02.00_r0145_c0010 g) operating leasing expenses, includ￾ing direct operating expenses from investment property that generate rents F45.03_r0020_c0020 (only from operating leased as￾sets)+ F45.03_r0030_c0020 (only from operating leased as￾sets)+ F16.08_r100_c0010 (only from operating leased as￾sets) For institutions not required to report either F16 or F45 templates, this can also be obtained from F02.00_r350_c0010 (only from operating leased as￾sets) + F02.00_r380_c0010 (only from operating leased assets) by considering only the amount perti￾nent to the relevant item, which is described in the left column h) expenses from changes in fair value in investment properties that gener￾ate rents and are measured using the fair value model F45.03_r0010_c0020 (only from operating leased as￾sets) For institutions not required to report the F45 tem￾plate, this can also be obtained from F02.00_r350_c0010 (only operating leased assets) by considering only the amount pertinent to the relevant item, which is described in the left column. i) losses from operating leased assets F45.03_r0040_c0020 (only from operating leased as￾sets) For institutions not required to report the F45 tem￾plate, this can also be obtained from F02.00_r350_c0010 (only from operating leased as￾sets) by considering only the amount pertinent to the relevant item, which is described in the left column.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK j) depreciation and impairment or re￾versal of impairment of operating leased assets whose income or ex￾penses are included in the calcula￾tion of the interest and leases com￾ponent F02.00_r0390_c0010 (only from operating leased as￾sets) + F02.00_r0520_c0010 (only from operating leased assets) Asset component (Article 3 of the RTS on BI items) a) gross carrying amount of cash bal￾ance at central banks and other de￾mand deposits F18.00_r0005_c0010 b) gross carrying amount of debt secu￾rities F18.00_r0010_c0010 + F18.00_r0181_c0010 + F18.00_r0211_c0010 + F01.01_r0080_c0010 + F01.01_r0094_c0010 + F01.01_r0173_c0010 + F01.01_r0177_c0010 + F01.01_r0232_c0010 + F01.01_r0236_c0010 c) gross carrying amount of loans and advances F18.00_r0070_c0010 + F18.00_r0191_c0010 + F18.00_r0221_c0010 + F01.01_r0090_c0010 + F01.01_r0095_c0010+ F01.01_r0174_c0010 + F01.01_r0178_c0010 + F01.01_r0233_c0010 + F01.01_r0237_c0010 d) fair value of all derivatives classi￾fied as financial assets at the refer￾ence date for the calculation of the asset component, as long as the flows from such derivatives have been recognised, during the finan￾cial year, in the interest component; both trading and economic hedges and hedge accounting shall be in￾cluded F01.01_r0060_c0010 (only those generating interest or similar flows) + F01.01_r0092_c0010(only those generating interest or similar flows) + F01.01_r0240_c0010 (only those generating interest or similar flows) e) carrying amount of tangible assets and intangible assets subject to lease F21.00_r0010_c0010 + F42.00_r0010_c0020 + F21.00_r0040_c0010 + F42.00_r0040_c0020 + F21.00_r0070_c0010 + F42.00_r0070_c0020 For institutions not required to report either F21 or F42 templates, this can also be obtained from F01.01_r270_c0010 (only from leased assets) + F01.01_r320_c0010 (only from leased assets). Dividend component (Article 4 of the RTS on BI items) dividend income from equity instruments and investments F02.00_r0160_c0010 Other operating income (Article 5 of the RTS on BI items)

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK a) income from changes in fair value in tangible assets measured using the fair value model, except income from changes in fair value in investment properties that gen￾erate rents and are measured using the fair value model F45.03_r0010_c0010 (excluding leased assets) For institutions not required to report the F45 tem￾plate, this can also be obtained from F02.00_r340_c0010 (excluding leased assets) by con￾sidering only the amount pertinent to the relevant item, which is described in the left column. b) income from other income not due to leases F45.03_r0040_c0010 (excluding leased assets) For institutions not required to report the F45 tem￾plate, this can also be obtained from F02.00_r340_c0010 (excluding leased assets) by con￾sidering only the amount pertinent to the relevant item, which is described in the left column. c) profit from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations F02.00_r0600_c0010 Other operating expenses (Article 6 of the RTS on BI items) a) expenses from changes in fair value in tangible assets measured using the fair value model, except expenses from changes in fair value in investment proper￾ties that generate rents and are measured us￾ing the fair value model F45.03_r0010_c0020 (only from operating leased as￾sets) For institutions not required to report the F45 tem￾plate, this can also be obtained from F02.00_r350_c0010 (only from operating leased as￾sets) by considering only the amount pertinent to the relevant item, which is described in the left column. b) expenses from other expenses, not due to operational risk events and not due to financial leases F45.03_r0040_c0020 (not due to operational risk and not due to financial leases) For institutions not required to report the F45 tem￾plate, this can also be obtained from F02.00_r350_c0010 (not due to operational risk and not due to financial leases) by considering only the amount pertinent to the relevant item, which is de￾scribed in the left column. c) losses from non-current assets and disposal groups classified as held for sale not qualifying as discontinued opera￾tions F02.00_r0600_c0010 d) losses, expenses, provisions and other financial impacts due to operational risk events accounted for in any items of the profit and loss statement Sum of points i. to vii. below, plus the remaining losses, expenses, provisions and other financial im￾pacts due to operational risk events including those accounted for in the following items:

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK
i. interest expenses F02.00_r090_c0010 (due to operational risk events)
ii. other operating expenses F45.03_r0040_c0020 (due to operational risk events)
For institutions not required to report the F45 tem￾plate, this can also be obtained from F02.00_r350_c0010 (due to operational risk events) by considering only the amount pertinent to the rele￾vant item, which is described in the left column.
iii. staff expenses F02.00_r0370_c0010 (due to operational risk events)
iv. other administrative expenses F02.00_r0380_c0010 (due to operational risk events
or to outsourcing fees paid for the supply of financial services)
v. depreciation F02.00_r0390_c0010 (due to operational risk events)
vi. provisions or (-) reversals of provi￾sions
F02.00_r0430_c0010 (due to operational risk events)
vii. Impairment or (-) reversal of im￾pairment
F02.00_r0460_c0010 (due to operational risk events)

• F02.00_r0510_c0010 (due to operational risk
  events)
  Fee and commission income (Article 7 of the RTS on BI items) a) fee and commission income by ac￾tivity F22.01_r0020_c0010 + F22.01_r0051_c0010 + F22.01_r0055_c0010 + F22.01_r0060_c0010 + F22.01_r0070_c0010 + F22.01_r0080_c0010 + F22.01_r0110_c0010 + F22.01_r0120_c0010 + F22.01_r0131_c0010 + F22.01_r0140_c0010 + F22.01_r0180_c0010 + F22.01_r0190_c0010 + F22.01_r200_c0010 + F22.01_r0210_c0010 + F22.01_r0211_c0010 + F22.01_r0213_c0010 + F22.01_r0214_c0010 + F22.01_r0220_c0010 Also obtained from F02.00_r200_c0010. Fee and commission expenses (Article 8 of the RTS on BI items) a) fee and commission expenses by ac￾tivity F22.01_r0235_c0010 + F22.01_r0240_c0010 + F22.01_r0245_c0010 + F22.01_r0250_c0010 + F22.01_r0255_c0010 + F22.01_r0260_c0010 + F22.01_r0270_c0010 + F22.01_r0280_c0010 + F22.01_r0281_c0010 + F22.01_r0282_c0010 + F22.01_r0290_c0010 + F02.00_r0380_c0010 (only outsourcing fees paid) Also obtained from F02_r0210_c0010 + F02.00_r0380_c0010 (only outsourcing fees paid) Trading book component (Article 10 of the RTS on BI items)

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK a) Gains or (-) losses on financial as￾sets and liabilities held for trading, net F02.00_r0280_c0010 + F02.00_r0285_c0010 b) Gains or (-) losses from hedge ac￾counting, net, where hedge account￾ing is used for hedging financial as￾sets and liabilities held for trading. F02.00_r0300_c0010 (only the trading book component) c) Exchange differences [gain or (-) loss], net, where such differences are originated from financial assets and liabilities held for trading F02.00_r0310_c0010 (only the trading book component) Banking book component (Article 11 of the RTS on BI items) a) Gains or (-) losses on derecognition of financial assets and liabilities not meas￾ured at fair value through profit or loss, net F02.00_r0220_c0010 b) Gains or (-) losses on non-trading fi￾nancial assets mandatorily at fair value through profit or loss F02.00_r0287_c0010 + F02.00_r0295_c0010 c) Gains or (-) losses on financial assets and liabilities designated at fair value through profit or loss, net F02.00_r0290_c0010 d) Gains or (-) losses from hedge accounting, net, where hedge accounting is used for hedging financial assets and liabili￾ties other than held for trading F02.00_r0300_c0010 (only the non-trading book component) e) Exchange differences [gain or (-) loss], net, where they are originated from financial assets and liabilities other than held for trading F02.00_r0310_c0010 (only the non-trading book component)
Article 2
Entry into force
This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. This Regulation shall be binding in its entirety and directly applicable in all Member States. Done at Brussels,

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK For the Commission The President On behalf of the President [Position]

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK 5.Accompanying documents
5.1 Draft cost-benefit analysis / impact assessment
Technical standards in Article 314(9) of the CRR
Article 314(9)(a) of the CRR mandates the EBA to list the components of the BI, while Arti￾cle 314(9)(b) of the CRR mandates the EBA to specify the elements indicated in Article 314(5) to be
excluded from the BI. The EBA shall draft regulatory technical standards that will address both the above-mentioned mandates. Furthermore, Article 314(10) of the CRR requires the mapping of the items of the BI with the cor￾responding reporting cells in Commission Implementing Regulation (EU) 2021/451. The EBA shall also draft ITSs to address this mapping. The strategic objective of the RTS and ITS is to provide sufficient provisions for building the business indicator in a consistent way, and thus providing an exhaustive list of elements that form part of the business indicator calculation, and the way they contribute to the calculation of this indicator (Article 314(9)(a) of the CRR), as well as the specification of the elements that are excluded from its calculation (Article 314(9)(b) of the CRR). In doing so, the EBA is confronted with the following op￾erational challenges:

• Requesting the necessary information by using, as far as possible, the existing information
  or calculation practices to avoid burdening credit institutions;
• Harmonising the best calculation practices across the EU;
• The proposals should not have a detrimental effect on the total economic cost resulting
  from the cost of regulatory capital and the operational cost of the preferred solutions. One of the main principles at the heart of the European implementation of the final Basel III frame￾work has been full alignment with the Basel policy stances. In the context of the operational risk framework and given that the BI is defined as a financial statement-based proxy, this leads to using an accounting approach for defining the components of the BI. Considerations on the Asset Component The asset component (AC) is part of the formula used to calculate the interest, leases and dividend component (ILDC) of the BI and, in accordance with Article 314(2) of the CRR, comprises the total gross outstanding loans, advances, interest-bearing securities, including government bonds, and lease assets. The AC is used in the formula of the ILDC to set a cap on the contribution of the Interest and Leases Component (IC) to the business indicator.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK Two relevant points on the AC are whether or not interest-bearing derivatives should be included among its list of items, and in the affirmative case, what metric should be used for their calculation (i.e. fair value or notional). To answer the first question, the rationale adopted in the RTS has been to avoid inconsistencies between the items that make up the IC and those that are part of the AC. In other words, all the types of assets which generate interests should be included into the AC, since the interests gener￾ated by these assets contribute to the IC. Conversely, types of assets which do not generate inter￾ests, such as cash on hand, should not be part of the AC. From this perspective, it follows logically that if derivatives result in ‘assets’ and generate interest, either income or expenses, they must be included in the AC. As far as the second question is concerned, a full alignment with the Basel standards has been sought. Since the calibration of the ILDC in the BI, including the 0.0225 coefficient applied to the AC and acting as a cap, has been built – among others – on the derivatives amounts reported by the banks participating in the Basel QIS, and since these derivatives have most been likely reported at their fair value, the fair value should also be considered as a metric for these types of assets when calculating the AC. When marking-to-market a derivative contract results in a positive fair value, such a position is generally accounted for as a balance sheet asset. Therefore, assets resulting from the positive fair value of a derivative contract that produces interest, income or expenses should be included in the AC of the BI. The EU-specific data collection via the Quantitative Impact Studies (QIS) process requested that participating banks provide data on their positions on ‘interest-earning assets’ or AC and their sub￾category of ‘derivatives with positive fair value’ (hereinafter, ‘derivatives’). The date indicated that derivatives comprise a minor part of the AC, i.e. 4.4% on (unweighted) average, except for six whose derivatives’ participation was equal or greater than 25%. The existence of these outliers resulted in a median value (0.79%) that is much lower than the mean value (4.4%).

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK
Figure 1: Share of ‘Derivatives with positive fair values’ in the positions of ‘interest-earning assets’, as of December 2023,
94 banks
Min 0.00%
Mean 4.40%
Q1 0.04%
Q2 (Median) 0.79%
Q3 2.99%
P10 0.00%
P20 0.00%
P30 0.17%
P40 0.51%
P50 0.79%
P60 1.75%
P70 2.83%
P80 3.46%
P90 4.78%
P100 (Max) 71.44%
When observing the share of derivatives among business model categories and categories of sys￾temic importance, one could observe that the weighted average ratio of corporate-oriented insti￾tutions (15.66%) is much higher than the average for all banks (5.66%), while the latter is driven by the high weighting of GSIIs and OSIIs in the formulation of the global weighted average (4.98% and 4.70%, respectively). It is worth noting that banks belonging to ‘Other’ (non-GSIIs, non-O-SIIs) and providing a wide spec￾trum of services, i.e. ‘Universal’ business model, exhibit the lowest portion of derivatives (1.01%), while ‘Other’ institutions that provide ‘Corporate-oriented’ services reported the highest share of derivatives (33.77%) (See Table below).
Table 5: Share of ‘Derivatives with positive fair values’ in the positions of ‘interest-earning assets’ per category of systemic
importance and business model, as of December 2023, 94 banks BANK GROUP CORPORATE-ORI￾ENTED RETAIL-ORI￾ENTED UNIVERSAL GRAND TOTAL GSII 4.98% 4.98% OSII 2.35% 2.44% 4.95% 4.70% OTHER 33.77% 2.39% 1.01% 14.92% GRAND TOTAL 15.66% 2.40% 4.92% 5.66% The average marginal impact of the derivatives with positive fair value within the AC has been an additional element to justify the inclusion of such items within the AC, as in Article 3 (d) of the RTS on BI items.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK Considerations on the Financial Component An additional, relevant, point considered in the RTS is the definition of the financial component. In line with the Basel standards, the RTS have followed an accounting approach (AA) in defining the items of the trading book components and the banking book component. However, some institu￾tions carrying out specific types of operations or making specific choices in terms of accounting approaches have suggested alternative practices – where applicable – for the discrimination be￾tween the profit and loss of the two books, based on the prudential boundary framework as set out by the CRR, in Part Three, Title I, Chapter 3. This is why both approaches to separate the profit and loss of the trading book component and the banking book component are provided for in the CRR, and why the EBA has been mandated to define the items of this component by taking into account the international regulatory standards and, where appropriate, the prudential boundary frame￾work. In line with the concept of appropriateness included in the legal text, the RTS have envisaged that the use of the prudential boundary framework (PBA in the RTS) is possible where some conditions are fulfilled, i.e. when the institution is actually carrying out operations/accounting choices eligible for the use of the PBA (e.g. when these operations/accounting choices give rise to an actual ‘un￾warranted increase’ of the FC, if calculated under the AA criteria), and has implemented organisa￾tional requirements able to properly calculate the profit and loss of the trading and banking book components. When adopting the PBA, the use of this approach in combination with the AA is for￾bidden, to avoid cherry-picking between these two approaches. The RTS also envisage, in Article 14, the reversal from the PBA to the AA. Although this possibility is not mentioned in the CRR, it is the obvious consequence when the conditions for the use of the PBA are no longer fulfilled. Moreover, it was deemed important in the RTS to discourage frequent switches from an approach to the other, so to limit the yearly selected use of the PBA or of the AA just for saving operational risk regulatory capital. The EBA invited credit institutions that intend to submit comments during the consultation to com￾plement these comments with the completion of the QIS templates that were circulated on 26 Jan￾uary 2024, to the participating banks for completion. To better understand whether a bank is using the AA or the PBA, the QIS data collection exercise requested the participating sample to report the position that results from what can be considered an approximation of the PBA [‘Net profit (loss) on financial operations (trading book)’ – row 21] and the one that the bank is using as the AA [‘Gains or (-) losses on financial assets and liabilities held for trading, net’ – row 23). Should they be identi￾cal, or close
to each other, one may conclude that banks are using the AA, otherwise they would apply to the PBA. 12 12 ‘Net profit (loss) on financial operations (trading book) – row 21’ is considered an approximation of the Trading book component under the PBA, since the QIS instructions for this item (and consistently those for the item ‘Net profit (loss) on financial operations (non-trading book)’) state the following: ‘To distinguish trading from non-trading books items, the criteria in the Committee’s new Minimum capital requirements for market risk should be used’ (Basel Committee on Bank￾ing Supervision, Minimum capital requirements for market risk, January 2019, www.bis.org/bcbs/publ/d457.htm

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK This analysis, however, does not permit assessing whether the differences between the alleged PBA and the AA amounts are due to a proper interpretation of the concept of ‘unwarranted increase’, as indicated in paragraph 27 of these documents. Therefore, the outcome of the analysis should be taken with caution. The EBA separately compared the trading book and the non-trading book positions. Trading book The comparison for the trading book indicated that more than 50% of the participating banks re￾ported identical values in both sets of data, signifying that they tend to follow the AA (see 30th to 80th percentile in the Figure below). On the other hand, there are 27 banks (out of 97) that reported ratios of either above 2 or below 0.5, indicating that the reported values for the one approach are at least twice as much as the value for the other approach. When it comes to the assessment of business models and categories of significant importance, ‘Universal OSIIs’ and ‘Universal Other’ institutions seem to generally follow the AA, while GSIIs gen￾erally deviate from the AA, indicating that they follow the PBA (see Table below). The assessment of the weighted average for all banks shows that the reported positions for AA and PBA, for the trading positions, deviate by 30% (a ratio of 1.30 – see Table below). Therefore, it is assumed that the institutions have followed the prudential boundary regime to report amounts into the ‘Net profit (loss) on financial operations (trading book)’ and ‘Net profit (loss) on financial operations (non-trading book)’. Vice versa, the row ‘Gains or (-) losses on financial assets and liabilities held for trading, net’ – row 23” is taken from the FINREP; hence, by definition, it represents the Trading book component according to the AA. When this cell is identical or close to cell 21, it derives that the institution has not significantly deviated from the AA when feeding the Trading book component. If instead there is a relevant difference between rows 23 and 21, this can be caused by the use of the prudential boundary to report the Trading book component. Differences can also be caused by other reasons not easy to identify or justify, in particular when the approximated PBA amount is larger than the AA amount. Similar considerations can be applied to the Non-Trading Book (see the following paragraph in the doc), i.e. when com￾paring the ‘Net profit (loss) on financial operations (non-trading book)’ – ideally reported in line with the BCBS market risk framework – with the sum of the relevant FINREP items, representing the AA for the Non-Trading book component.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK
Figure 2: Trading book: comparison of ‘net profit (loss) on financial operations (trading book)’ with ‘gains or losses on
net financial assets and liabilities held for trading’, as of December 2023, 97 banks Min -118.99 Mean 8.10 Q1 0.92 Q2 (Median) 1.00 Q3 1.00 P10 0.00 P20 0.67 P30 1.00 P40 1.00 P50 1.00 P60 1.00 P70 1.00 P80 1.00 P90 1.68 P100 (Max) 781.25
Table 6: Trading book boundary: ratio of ‘net profit (loss) on financial operations (trading book)’ with ‘gains or losses on
net financial assets and liabilities held for trading’ per business model and category of significant importance: as of De￾cember 2023, 97 banks BANK GROUP CORPORATE-ORI￾ENTED RETAIL-ORIENTED UNIVERSAL GRAND TOTAL GSII 1.58 1.58 OSII 1.21 - 1.00 1.01 OTHER 0.76 0.97 1.01 0.81 GRAND TOTAL 0.83 0.96 1.35 1.30 Non-trading book To compare the non-trading book positions that correspond to the two approaches, the EBA com￾pared the ‘Net profit (loss) on financial operations (non-trading book)’ on the one side, and the sum of the following items on the other side:
(a) Gains or (-) losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net; (b) Gains or (-) losses on non-trading financial assets mandatorily at fair value through profit or loss, net; (c) Gains or (-) losses on financial assets and liabilities designated at fair value through profit or loss, net; (d) Gains or (-) losses from hedge accounting, net; (e) Exchange differences [gain or (-) loss], net.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK Should the resulting ratio be unity, or close to it, the reported values would designate that banks follow the AA; otherwise, they tend to follow the PBA.
Figure 3: Non-trading book: comparison of ‘Net profit (loss) on financial operations (non-trading book)’ with the positions
used by the accounting approach to identify non-trading portfolios, as of December 2023, 105 banks Min -35.28 Mean 2.60 Q1 0.40 Q2 (Median) 1.00 Q3 1.00 D1 -0.37 D2 0.14 D3 0.63 D4 1.00 D5 1.00 D6 1.00 D7 1.00 D8 1.12 D9 1.54 D10 (Max) 254.44 The comparison for the non-trading book indicated that 41 out of 105 banks reported identical values in both sets of data, signifying that they follow the AA (see 40th to 70th percentile in the figure above). On the other hand, there are 34 banks that reported ratios of either above 2 or below 0.5, indicating that the reported values for the one approach are at least twice as much as the value for the other approach. When it comes to the assessment of business models and categories of significant importance, there is no specific business model, or category of significant importance, that generally follows the AA, although ‘Universal GSIIs’ and ‘Universal OSIIs’ indicate ratios that are close to one, evidencing that most of them follow the AA. The assessment of the weighted average for all banks shows that the reported positions for AA and PBA of the non-trading positions deviate by 13% (a ratio of 1.13 – see Table below).
Table 7: Non-trading book: Ratio of ‘Net profit (loss) on financial operations (non-trading book)’ to the sum of positions
used by the accounting approach to identify non-trading portfolios, as of December 2023, 105 banks BANK GROUP CORPORATE-ORI￾ENTED RETAIL-ORIENTED UNIVERSAL GRAND TOTAL GSII 1.11 1.11 OSII 1.17 1.54 1.16 1.17 OTHER -1.75 -0.14 0.72 0.97 GRAND TOTAL 1.88 -0.12 1.13 1.13 Under the assumption that the banks interpreted the QIS cells denoting the PBA and the AA in the correct manner (see footnote 12), the data showed that 13%–30% of the banks tend to deviate

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK from the AA when reporting the items of the trading and non-trading book, although this deviation is not unidirectional. This outcome was a further element that justified the inclusion in the RTS on BI items of certain conditions, as in Article 9(2), and an ex ante notification process to the competent authorities, as in Article 13, so to link the choice to use the PBA to objective criteria and to proper documentation and information, so to permit these authorities to properly assess and review this choice. Additional data analysis Assessment of the level of ‘Other Operating Expenses’ to Total Losses, averages over 2021– The QIS exercise, as of December 2023, collected data on total ‘Other Operating Expenses’ (OE), but also on its subcategories of ‘Expenses, losses and other financial impacts from operational risk events (excluding provisions)’ (ORE) and ‘Provisions [arising] from operational risk events’ (P-ORE). It is noteworthy that, in most cases, the above-mentioned subcomponents are sub-additive to the OE, as the reporting banks have assigned other expenses or losses in the total amounts of OE. In addition, the EBA collected data for Total Gross Losses (TGL) and Total Net Losses (TNL), i.e. the losses that result from the difference in TGL and the associated recoveries (from insurance or other than insurance). To better understand the interaction between OE and the value of losses, the EBA conducted the following analyses on the following ratios:
(a) Total OE to TNL;
(b) Total OE to TGL;
(c) The part of OE that corresponds to the sum of ORE and P-ORE to the TNL; (d) The part of OE that corresponds to the sum of ORE and P-ORE to the TGL. Total OE to TNL The evidence as of December 2023 showed that, on average (unweighted), OE is 32.9 times the TNL. The median is 3.3 owing to the existence of 20 observations with values above 40 (NOT shown in the Graph below), of which eight observations exhibited OOE-to-TNL ratios of above 100. On the other side, there were six banks with OE-to-TNL negative ratios, of which five case are at￾tributed to the negative total net losses, i.e. total recoveries greater than total losses, while one bank reported negative OE.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK
Figure 4: Allocation of the ratio of ‘Other operating expenses’ to ‘Total Net Losses’ among banks, as of December 2023,
159 banks
Min -30.8
Mean 32.9
Q1 1.0
Q2 (Me￾dian)
3.3
Q3 10.9
P10 0.0
P20 0.7
P30 1.3
P40 2.0
P50 3.3
P60 5.6
P70 8.5
P80 14.2
P90 55.9
P100
(Max)
1,623.1
Note: Qx (where x=1…3) indicates the quartile, while Py (where y=10…100) indicates the percentile. The analysis below shows the allocation of OE-to-TNL ratios per business model and systemic im￾portance of banks. The banks were allocated into three different business models (corporate-ori￾ented, retail-oriented and universal services), and three categories of systemic importance (Global systemically important institutions (GSII), Other systemically important institutions (OSII) and other institutions). One could observe that the weighted average ratio of corporate-oriented institutions (11.26) is much higher than the average for all banks (2.47), while the latter is driven by the high weighting of GSIIs and OSIIs in the formulation of the global weighted average.
Table 8: Ratio of ‘Other operating expenses’ to ‘Total Net Losses’ per category of systemic importance and business model,
as of December 2023, 159 banks
Bank group Corporate-oriented Retail-oriented Universal Grand Total GSII 2.30 2.30 OSII 11.31 2.19 2.30 2.41 Other 11.08 6.93 2.12 4.66 Grand Total 11.26 6.79 2.29 2.47 Total OE to TGL The analysis compared the OE with the TGL by calculating the ratio OE-to-TGL. The allocation of the ratios per bank showed that, on simple average, the OE is 29.2 times higher than the TGL. Given that the median of the same sample is 2.5, the simple average is highly affected by few extreme

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK outliers, approximately 10% of the sample, which grades the average value upwards. These results are in line with the analysis on OE-to-TNL analysis. The OE-to-TGL analysis per business model and systemic importance of banks exhibits the same trends among the bank categories, i.e. the ratio for Universal banks is much lower than the ratio for retail-oriented bank, while the respective metric for corporate-oriented banks is the highest among the business models. As expected, the absolute values of OE-to-TGL are consistently lower than the OE-to-TNL.
Figure 5: Allocation of the ratio of ‘Other operating expenses’ to ‘Total Gross Losses’ among banks, as of December 2023,
158 banks
Min -0.2
Mean 29.2
Q1 1.0
Q2 (Median) 2.5
Q3 8.4
D1 0.0
D2 0.7
D3 1.3
D4 1.8
D5 2.5
D6 4.1
D7 6.6
D8 10.1
D9 37.9
D10 (Max) 1,623.1
Table 9: Ratio of ‘Other operating expenses’ to ‘Total Gross Losses’ per category of systemic importance and business
model, as of December 2023, 158 banks
Bank group Corporate-oriented Retail-oriented Universal Grand Total GSII 1.63 1.63 OSII 5.49 1.59 1.64 1.71 Other 3.97 3.64 1.06 2.33 Grand Total 5.08 3.59 1.62 1.72 The part of OE, assigned to the sum of ORE and P-ORE, to the TNL To assess more specifically the correct feeding of operational loss events within the OE, the analysis focuses on the ratio between the sum of ‘Expenses, losses and other financial impacts from opera￾tional risk events (excluding provisions)’ (ORE) and the related ‘Provisions’ arising from the afore￾mentioned risk events (P-ORE), on the one hand, to TNL.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK The evidence as of December 2023 showed that approximately 60% of the banks (median of 0.81, 60th percentile: 1.00) indicate that these two elements of OE amount to less than the TNL. How￾ever, except for the 40% of the banks that show a ratio of above 1.00, there are several outliers that showed ratios above 5.00 (approximately 10% of the sample). When looking at the distribution of ratios amongst business models, one may observe that, in gen￾eral, universal banks exhibit a ratio below 1.00, with the exception of Other (domestically) im￾portant institutions, which show a ratio of 1.07. The data showed that, on (weighted) average, ‘Other’ ‘Corporate-oriented’ banks indicated the highest ratio (1.95).
Figure 6: Allocation of the ratio ‘sum (“OPE”, “P-OPE”) to TNL’ among banks, as of December 2023, 87 banks
Min -1.39
Mean 2.18
Q1 0.00
Q2 (Median) 0.81
Q3 1.41
D1 0.00
D2 0.00
D3 0.03
D4 0.49
D5 0.81
D6 1.00
D7 1.15
D8 1.46
D9 5.06
D10 (Max) 52.24
Table 10: Ratio of ‘sum (“OPE”, “P-OPE”) to TNL’ per category of systemic importance and business model, as of De￾cember 2023, 86 banks
Bank group Corporate-ori￾ented
Retail-oriented Universal Grand Total
GSII 0.60 0.60
OSII 0.84 0.17 1.08 1.07
Other 1.95 0.51 0.86 0.75
Grand Total 1.08 0.50 0.88 0.88
The part of OE, assigned to the sum of ORE and P-ORE, to the TGL To get additional evidence on the correct feeding of the OE with operational risk losses, the EBA conducted an additional analysis by calculating the ratio of the sum of ‘Expenses, losses and other financial impacts from operational risk events (excluding provisions)’ (ORE) and the related ‘Provi￾sions’ arising from the aforementioned risk events (P-ORE) to TGL. The evidence as of December 2023 showed that more than 70% of the banks (70th percentile: 0.95) indicate that these two elements of OE amount to less than the TGL. However, except for the more

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK than 20% of the banks that show a ratio of above 1.00, there are seven outliers that showed ratios above 5.00. Moreover, there were three banks which reported negative values, which clearly shows misreporting. When looking at the distribution of ratios amongst business models, one may observe that, on (weighted) average, all bank groups exhibit a ratio below 1.00.
Figure 7: Allocation of the ratio ‘sum (“OPE”, “P-OPE”) to TGL’ among banks, as of December 2023, 87 banks
Min -1.17
Mean 1.62
Q1 0.00
Q2 (Median) 0.56
Q3 1.05
D1 0.00
D2 0.00
D3 0.04
D4 0.24
D5 0.56
D6 0.79
D7 0.95
D8 1.26
D9 2.17
D10 (Max) 32.47
Table 11: Ratio of ‘sum (“OPE”, “P-OPE”) to TGL’ per category of systemic importance and business model, as of
December 2023, 86 banks
Bank group Corporate-ori￾ented
Retail-oriented Universal Grand Total
GSII 0.42 0.42
OSII 0.41 0.12 0.77 0.76
Other 0.70 0.27 0.43 0.38
Grand Total 0.49 0.26 0.62 0.61
After comparing the TNL or TGL with the sum of subcategories of OE that correspond to the ‘Ex￾penses, losses and other financial impacts from operational risk events (excluding provisions)’ (ORE) and the related ‘Provisions’ (P-OPE), the data showed that 20%–40% of the banks tend to underes￾timate the operational risk losses within the BI. This corroborates the decision to have specific evi￾dence of the operational risk losses within the BI and hence to request banks, in the RTS on BI items, to break down operational risk financial impacts in OE, as in Article 6(1)(d).

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK Share of insurance recoveries in total recoveries
Figure 2: Allocation of the share of insurance recoveries in total recoveries per bank, as of December 2023, 125 banks
Min 0.00%
Mean 14.80%
Q1 0.00%
Q2 (Median) 0.26%
Q3 9.96%
D1 0.00%
D2 0.00%
D3 0.00%
D4 0.00%
D5 0.26%
D6 1.77%
D7 5.05%
D8 15.28%
D9 75.24%
D10 (Max) 100.00%
Table 12: Share of insurance recoveries in total recoveries per business models and systemic importance of banks, as of
December 2023, 125 banks
Bank group Corporate-ori￾ented
Retail-oriented Universal Grand Total
GSII 1.92% 1.92%
OSII 3.37% 19.60% 1.73% 1.80%
Other 3.26% 6.11% 0.33% 2.90%
Grand Total 3.33% 6.27% 1.73% 1.95%
The above-mentioned analysis showsthat recoveries other than insurance form a large part of total recoveries or, otherwise stated, the insurance recoveries are only a small part of the total recover￾ies. This finding, in conjunction with the non-marginal difference between OE-to-TNL and OE-to￾TGL (see Analysis 1), justified the EBA’s policy, as reflected in the RTS, to request banks to include in the OE the losses net of other than insurance recoveries (new Article 6(2)(a)). Share of amount of net losses boundary with credit/market and pending Data as of December 2023, 97 banks Share of amount of net losses related to credit risk but not accounted in credit RWA:
9.95%
Share of amount of net losses related to market risk:
2.39%
Share of amount of pending losses: 0.43%

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK The boundary losses with credit risk not accounted for in credit RWA represent a not marginal part of the total net loss amount, i.e. 10%, much larger than the share of net losses related to market risk. This finding is a further element supporting the decision to add ‘Impairment or (-) reversal of impairment’ to the list of explicit items as breakdown of operational risk financial impacts in OE, as in Article 6(1)(d)(vii). Indeed, operational risk losses closely related with credit risk activity are typ￾ically accounted for in FINREP items F02 460 [‘Impairment or (-) reversal of impairment on financial assets not measured at fair value through profit or loss’] and F02 510 [‘Impairment or (-) reversal of impairment of investments in subsidiaries, joint ventures and associates’]. Technical standards in Article 314(10) of the CRR The ITS on the mapping of BI items to specific FINREP cells imply only negligible impact and are only limited to a marginally additional operational burden for NCAs in identifying the FINREP items that should be mapped. Since institutions are already required to complete FINREP templates, the EBA does not anticipate any relevant additional operational burden for them. The only additional oper￾ational burden will be borne by the EBA and the national competent authorities (NCAs). The EBA shall provide the mapping, and possibly prepopulate the COREP templates, while the NCAs shall double-check the correctness of the populated data and sign off the amounts for further use for analysis. All in all, it has been considered disproportionate to conduct a fully-fledged IA analysis on the im￾pact of the implementation of the ITS, provided that the impact, if any, will be close to zero for the institutions, whereas it will be negligible for the EBA and the NCAs. Technical standards in Article 315(3) of the CRR
Article 315(3) of the CRR mandates the EBA to specify ‘how institutions shall determine the adjust￾ments to the business indicator (point (a) referencing mergers, acquisitions and disposals), ‘the
conditions according to which competent authorities may grant the permission’ and ‘the timing of the adjustments’ (points (b) and (c) referencing disposals only). The EBA is mindful of the objective that the adjustment methods addressed in the current RTS should make sure that the adjustments, in cases of mergers or acquisitions and the conditions un￾der which an entity or an activity can be excluded, are tailored to the institution’s effective risk profile. That said, the RTS aims at ensuring sufficient harmonisation across the EU and realistic op￾erational implementation of the prudential requirements. To achieve those objectives, the follow￾ing aspects were especially considered by the EBA when drafting the RTS:

• Calculation of the business indicator adjustment: The determination of the adjustment
  value should consider that historical information related to purchased entities or activities may not be available or accurate. While the EBA’s baseline is the use of audited financial information over the last three years, and to ensure sufficient harmonisation, the EBA pro￾vides two ranked alternative calculation approaches. These alternative approaches should only apply for mergers and acquisitions given that, for disposals, the institution has the information to determine, precisely, the items to be excluded.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK

• Conditions for granting permission to exclude disposed entities and activities: In the con￾text of disposals of entities or activities, and while the activities are transferred, specific
  arrangements may have been entered into, with a view to allow the acquiring entity to receive indemnity in case of new liabilities or asset deterioration arising from events occur￾ring prior to the transaction. The disposing entity may therefore remain liable to some ex￾tent for events that occurred during the years preceding the transactions and revealed af￾terwards. The disposing entity may also face additional operational risks related to possible reorganisation aspects of the operation (e.g. reduction of resources dedicated to opera￾tional risk management and business restructuring). There are therefore situations in which it may not be considered reasonable for an institution to exclude items of a disposed entity from its BI and operational risk capital requirements. When assessing the proposals for the adjustments on BI due to mergers, acquisitions and disposals of entities and activities, as well as the conditions for granting permission to exclude disposed en￾tities and activities, the EBA considered only the options that are not expected to have or imply a detrimental effect on the total operational cost of the preferred solutions, while at the same time these solutions represent the risk profile of the institutions. While financial statements should exist for standalone entities, it is not necessarily the case for businesses/activities. It was therefore considered necessary to make a distinction between the treatment of entities vis-à-vis the treatment of activities, with respect to financial information to be used for the adjustment. Thus, for acquisition related to activities, it was considered that the most accurate information would be the financial information used for the final valuation (i.e. con￾sidered by the institution’s management body when approving the acquisition), which is subject to intense scrutiny by all the parties to the transactions and which, in principle, shall always be docu￾mented. However, to cope with cases where the expected financial information is not available or accurate, for instance, when the acquired entity transfers some of its activities prior to the operation, EBA proposes to request institutions to use alternative approaches, according to a clear rank. The ra￾tionale is that in the absence of reliable historical information, the EBA deems important to ensure that the adjustment is not underestimated and represents the riskiness of the activity, while using very simplified calculations to avoid complexity for the involved institutions. The EBA does not con￾sider efficient, for minimum harmonisation purposes, to provide the possibility to use any other alternative deemed relevant by the institution or the competent authority. In cases of disposals of activities, the EBA considers that the disposing institution has all the infor￾mation needed to reflect them and therefore there is no need to provide an alternative calculation method. Finally, the question of implementing a materiality threshold has
  been the subject of an impact assessment. It had to be decided whether to implement a materiality threshold, and if so, or which types of transaction (M&A, disposals). Two objectives prevailed in the decision: i) to maintain a

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK prudential approach (i.e. capital requirements in line with risk profile) and ii) to reduce the admin￾istrative burden, for both institutions and competent authorities. With regards to a materiality threshold for M&As, the burden concerning the BI adjustments for M&As comes only from the calculation of the BI adjustment, as there is no permission to ask for. However, in order to know whether the threshold has been crossed, the institution must in any case calculate the impact on the BI. On top of this, the alternative methods proposed for the calcu￾lation of the adjustment provide for options regarding the calculation even when data are insuffi￾cient. Finally, implementing a threshold on M&A would only represent a temporary delay of an increase in capital requirements. For disposals, however, a threshold is appropriate. The threshold on disposals would simplify the process both for institutions, as well as for competent authorities. In addition, as the RTS has to specify ‘the conditions under which competent authorities are able to grant the permission […] to exclude from the BI amounts related to disposed entities’, a threshold on disposal is perfectly in line with the mandate as it would constitute a condition to grant the permission. An impact analysis based on the data collected via the QIS monitoring exercise was carried out. The intention was to analyse how many requests for permission could fit below different levels for the threshold. In line with the data (see table below), the threshold has been set at 5.0% of the net operating income (NOI). More than two thirds of potential requests could fit below a threshold of 5%. In addition to that, the 5% threshold would impact the BIC capital requirement at most by 0.9% (for institutions with a BI > EUR 30 bn and a total annual net operating impact of disposals just below the threshold), if we assume that the NOI can be used as a proxy for the BIC. With respect to the institution’s total capital requirements, the impact of this is negligible.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK 3 Propos e d mate riality thre s hold of X% NOI impact Numbe r of available data (/ratios ) 17 13 28 58 THRESHOLD SCENARIOS Number of ratio under 0,5% 2 0 8 10 Number of ratio under 1,0% 4 2 11 17 Number of ratio under 2,0% 6 5 15 26 Number of ratio under 3,0% 11 8 17 36 Number of ratio under 4,0% 11 9 18 38 Number of ratio under 5,0% 12 9 19 40 REDUCTION OF BURDENSOME Percentage of banks below the 0.5% thres hold among all banks reporting a ratio 11,8% 0,0% 28,6% 17,2% Percentage of banks below the 1.0% thres hold among all banks reporting a ratio 23,5% 15,4% 39,3% 29,3% Percentage of banks below the 2.0% thres hold among all banks reporting a ratio 35,3% 38,5% 53,6% 44,8% Percentage of banks below the 3.0% thres hold among all banks reporting a ratio 64,7% 61,5% 60,7% 62,1% Percentage of banks below the 4.0% thres hold among all banks reporting a ratio 64,7% 69,2% 64,3% 65,5% Percentage of banks below the 5.0% thres hold among all banks reporting a ratio 70,6% 69,2% 67,9% 69,0% CAPITAL REQUIREMENTS IMPACT (only for 1 or 2 years ) Thre s hold s ce narios (% NOI) E.g bank with €10bn of capital req. na 100,00% 10 000 € 0,5% 0,05% 4 761 905 € 1,0% 0,10% 9 523 810 € 2,0% 0,19% 19 047 619 € 3,0% 0,29% 28 571 429 € 4,0% 0,38% 38 095 238 € 5,0% 0,48% 47 619 048 € Capital re q. 10,5% (P1 + CCoB) Propos e d m ate riality thre s hold of X% NOI im pact Ye ar 2021 Ye ar 2022 Year 2023 TOTAL Num be r of available data (/ratios ) 17 13 28 58 THRESHOLD SCENARIOS Number of ratio under 0,5% 2 0 8 10 Number of ratio under 1,0% 4 2 11 17 Number of ratio under 2,0% 6 5 15 26 Number of ratio under 3,0% 11 8 17 36 Number of ratio under 4,0% 11 9 18 38 Number of ratio under 5,0% 12 9 19 40 REDUCTION OF BURDENSOME Percentage of banks below the 0.5% threshold among all banks reporting a ratio 11,8% 0,0% 28,6% 17,2% Percentage of banks below the 1.0% threshold among all banks reporting a ratio 23,5% 15,4% 39,3% 29,3% Percentage of banks below the 2.0% threshold among all banks reporting a ratio 35,3% 38,5% 53,6% 44,8% Percentage of banks below the 3.0% threshold among all banks reporting a ratio 64,7% 61,5% 60,7% 62,1% Percentage of banks below the 4.0% threshold among all banks reporting a ratio 64,7% 69,2% 64,3% 65,5% Percentage of banks below the 5.0% threshold among all banks reporting a ratio 70,6% 69,2% 67,9% 69,0% CAPITAL REQUIREMENTS IMPACT (only for 1-3 max. years) Thre s hold s ce narios (% NOI) Im pact on capital re q. for OpRis k Im pact on total capital re q. Assumptions: 0,5% 0,5% 0,1% i) NOI is a proxy of capital requirement for OpRisk 1,0% 1,0% 0,1% ii) OpRisk accounts for 10% of RWAs 2,0% 2,0% 0,2% 3,0% 3,0% 0,3% 4,0% 4,0% 0,4% 5,0% 5,0% 0,5%

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK
5.2 Feedback on the public consultation
The EBA publicly consulted on the draft proposal contained in this paper.
The consultation period lasted for 3 months and ended on 21 May 2024. 17 responses were re￾ceived, of which 12 were published on the EBA website. This paper presents a summary of the key points and other comments arising from the consultation, the analysis and discussion triggered by these comments and the actions taken to address them if deemed necessary. In many cases several industry bodies made similar comments, or the same body repeated its com￾ments in response to different questions. In such cases, the comments, and EBA analysis are in￾cluded in the section of this paper where EBA considers them most appropriate. Changes to the draft technical standards have been incorporated as a result of the responses re￾ceived during the public consultation. Summary of key issues and the EBA’s response The 17 respondents to this public consultation have provided a significant number of comments on all three technical standards presented in the Consultation Paper (CP). The feedback analysis has been organised along the lines of the questions asked in the CP, with an additional section on Gen￾eral comments and comments related to/with implications for the reporting framework. It has been apparent that the simultaneous publication of the CP on policy mandates and the CPs on reporting and transparency has drawn mixed comments addressing policy and reporting issues in all three CPs and consequential efforts were put into disentangling the nature of the comments. Finally, given the nature of the RTS on BI components and the ITS on mapping to FINREP, the comments made, as well as the EBA clarifications, tackle both the definitions, as well as the FINREP mapping of the items discussed. Please find below a summary of the key issues for each of the questions included in the CP. For the section on general comments and comments related to/with implications for the reporting framework, two topics should be mentioned: i) clarifications regarding the first reporting date, and ii) the frequency of calculation of the BIC. The EBA has clarified, in line with the ITS on Supervisory Reporting (see paragraph 141(c) of the Supervisory Reporting Instructions on the Operational Risk Templates), the update of the calculation of the BIC is on annual basis, at the end of the financial year. This figure is then also used for the three following quarters and no recalculation must be done in the absence of M&A or disposal of entities and activities. On the frequency of calculation of the BIC, the EBA has confirmed that the update of the calculation of the BIC is on annual basis, at the end of the financial year. This figure is then also used for the three following quarters. Regarding the comments on Question 1 on the ILDC, one notable comment referred to the use of the ‘clean’ vs ‘dirty’ price for FINREP reporting and the implications for institutions using one or the other approach when calculating the ILDC, but also the FC. The EBA has clarified that the application

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK of the clean or dirty price approaches constitutes an accounting option for the institutions. Further￾more, this choice should be consistently applied in FINREP for all financial instruments measured at fair value through profit or loss and for hedging derivatives classified in the category ‘hedge ac￾counting’ (see FINREP Annex 5, Part 2, para. 31). Consequently, the BI, as an accounting-based method, mirrors the P&L to calculate the relevant components, avoiding the possibility to arbitrage between both options just to reduce capital requirements. On Question 2 on the SC, comments have targeted the items on ‘Outsourcing fees’, ‘Fees and com￾missions’, ‘Other operating expenses’ and ‘Other operating income’. Clarifications from the EBA were brought to the elements discussed in the CP and in some cases, marked in the feedback table, changes were brought to the legal text of the technical standards to accommodate the comments received. On Question 3 on the FC, two topics should be highlighted here: i) the unwarranted increase as the basis for the choice of application of the PBA, and ii) the scope of application of the PBA within a group. With regards to the former, the EBA highlighted that the FC is the annual average of the absolute values over the last three financial years of the net profit or loss, so only in cases where the institution has not observed any unwarranted increase in the FC in three consecutive years (i.e. from T1 to T3), a reversal to the AA (i.e. in T4) is mandatory. This period is sufficiently long to justify that certain types of operations and/or accounting choices that had caused an unwarranted in￾crease in the FC are no longer relevant for the institution, for example because they have been dismissed. On the latter point, the EBA clarifies that the PBA should be applied at institution level, either at the whole consolidation level or at as solo level, and no partial use is possible. Regarding Question 4 on exclusions from the BIC, comments revolved around ‘Extraordinary/irreg￾ular items’ such as profits and losses from the sale of non-trading book items/extraordinary items, the EBA maintained a stance in line with the CRR, which does not envisage the exclusion of extraor￾dinary or irregular items from the BI, following the logic in the BCBS revised standard on operational risk. On Question 5 regarding the FINREP mapping, contrasting comments were made regarding the granularity of the mapping (calls for more, as well as for less, granularity), calls were made for mak￾ing the mapping non-mandatory, as well as inquiries about the mapping to FINREP at solo vs con￾solidated levels. With regards to the last point, the EBA acknowledged the difficulties posed by the different scope of supervisory reporting, and for those FINREP templates, not including in the full FINREP scope, an alternative, less granular, mapping will be provided. Thus, the ITS on
Reporting will reflect this accordingly. Finally, it should be noted that some of these comments were also made in the context of the draft RTS on adjustments to the BI due to M/A/disposals. The remainder of the Questions in the CP (i.e. Questions 6 to 11) target the third technical standard in the CP, the draft RTS on adjustments to the BI due to M/A/disposals.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK Under Question 6 on the financial statements used for the final valuation, the EBA was asked to clarify that the legal text refers to external audited financial statements, to clarify the methodology for intragroup transactions and further specify the timing for adjustments. Question 7 on the three approaches for the calculation of the adjustment yielded several compet￾ing suggestions on how to approach the alternative calculation of the adjustments. The EBA acknowledges the point and proposes the legal text provides approach ‘c)’ first, and then, only if this approach is not feasible due to lack of data, the approach ‘b)’ could be used. This would also imply deleting approach ‘a)’. In relation to Question 8 on the method for disposals, a couple of points were made on the impact of an absence of permission and the case of delayed reaction of the NCA. While Questions 9 to 11 tackle the possibility of introducing (and the operationalisation of) a ma￾teriality threshold for adjusting the BI following M&As, a number of comments received have also focused on the introduction of a threshold for disposals. The EBA has analysed the comments and included associated answers and subsequent changes in the draft legal text, as well as providing an overview in the Background and Rationale and impact assessment section.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK Summary of responses to the consultation and the EBA’s analysis General comments and comments related to/with implications for the reporting framework First reporting date The Consultation Paper (EBA/CP/2024/07) does not make any particular statements about the first reporting dates using the new approach. The provisions in Annex II,
Chapter 4.1.3 of this CP on how to proceed
in case of non-availability of historical data, seem to be only partially applicable for the transition to the new approach, as outlined here. We believe it is necessary to include facilitations for the phasing-in period of the new reporting requirements, i.e. the first two years after the entry into force of CRR III, namely:

1. A waiver of retroactive adjustments of
   the FINREP figures for YE 2023 and YE 2022 regarding M&A transactions should be granted. It should be possible to refrain from collecting and preparing data for M&A transactions, which took place in the longer past. For detailed information on expecta￾tions at the first reporting date after the date of application of the CRR3, please refer to the EBA communication here:
   https://www.eba.europa.eu/publications￾and-media/press-releases/eba-updates￾supervisory-reporting-framework As evidenced by the communication in the link above, the steps taken by the EBA with regards to the reporting frame￾work and its interaction with the policy development phase should already pro￾vide relaxed conditions for the first re￾porting dates and allow institutions to ease into the new requirements; there￾fore further phasing-in measures are not considered necessary at this stage. Nonetheless, the institution’s observa￾tions on the completion of Table 16.02 No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK
2. In line with Annex II (EBA/CP/2024/07),
Chapter 4.1.3, Text 149, breakdowns that
cannot be derived from FINREP reports may be determined on a best effort basis. For ex￾ample, breakdowns in the trading or bank￾ing book may be estimated if not available. Furthermore, the methodology of the new BI approach and the corresponding report￾ing template C16.02 (see EBA/CP/2024/07) require the computation of the business in￾dicator and the preparation of the detailed reporting template C16.02 for each of the last three financial year ends. In our under￾standing, this implies that for the first re￾porting date of 31.3.2025, the figures for YE 2024, YE 2023 and YE 2022 must be pro￾cessed in retrospect. Even if FINREP reports are available for these reporting dates, the reporting data are not available in the gran￾ularity required for the preparation of the reporting form C16.02. In cases of devia￾tions from the existing FINREP reporting (in particular concerning adjustments for M&A) the retroactive data provision will be very burdensome and difficult. The temporary solution could also explain how to calculate the indicator in the interim will be assessed when finalising the re￾lated ITS on Supervisory Reporting.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK period of first 3 years of the RTS application. This interim regulation should accept the methodology of calculation for the years 2022-2024, as the rules were in force in this period and it should avoid recalibrating date for these years for the BI computation in the year 2025, 2026 and 2027. Audited financial state￾ments Respondents request the opportunity to calculate the BICs based on 31/12/N-1 for all remittances of the year (i.e. from Q1 N to Q4 N) and shift only at Q1 N+1 instead of Q4 N. These audited statements for the most recent year (e.g. 2023) flowing into the FINREP reporting are only available by the end of March of the following year (e.g. end￾of-March 2024, please refer to FINREP re￾porting schedule for reference). This is too late for the calculation of the OR RWA as of the previous year-end (e.g. 2023), because publication dates of year-end results requir￾ing OR RWA input cannot be met on 31 De￾cember. Also, banks expect delays of multi￾ple weeks until they can provide the audited numbers. The methodology for the calculation of the BIC is stated in Article 314 of the CRR. In line with the ITS on Supervisory Reporting (see paragraph 141(d) of the Supervisory Reporting Instructions on the Operational Risk Templates), where audited figures are not available, institu￾tions may use business estimates. No changes made Interaction with the disclo￾sures framework Regarding template OR1, the mapping to supervisory reporting is not provided yet; it There is currently no correspondence between OR1 and the C17 templates. The reporting templates for the losses No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK would be helpful for institutions to under￾stand whether EBA is planning to establish such correspondence and by when. from operational risk will be developed in a second stage, as explained in Section
2.2.8.3. of the ITS on Supervisory Re￾porting.
Frequency of calculation of the BIC
On reading the EBA proposal, we under￾stand that, apart from the merger/acquisi￾tion/disposal events, the result of the oper￾ational risk capital requirements is expected to be identical for a full year. We would be grateful if the EBA could confirm our read￾ing as templates C16 are required quarterly. We would like to have more alignment be￾tween operational risk reporting and FINREP. In current shape, we need to pre￾pare separate reporting processes, every time verifying:

• Appropriate classification of lease
  items;
• Appropriate division between banking
  and trading book;
• Appropriate reporting of costs con￾nected with operational risk events;
• Calculation of some items from F 21 as
  there is a threshold, which allows for not calculating it at the level of sub￾consolidated FINREP reporting; As indicated in the ITS on Supervisory Reporting (see para. 141(c) of the Super￾visory Reporting Instructions on the Op￾erational Risk Templates), the update of the calculation of the BIC is on annual basis, at the end of the financial year. This figure is then also used for the three following quarters and no recalculation has to be done in the absence of M&A or disposal of entities and activities (e.g. for the reporting date ‘December Y-1, March Y, June Y, September Y’ and a fi￾nancial year – end ‘December 31’, the calculation is based on the financial situ￾ation as at ‘December 31’ using the whole financial years Y-1, Y-2 and Y-3). No changes made

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK One process can be easier to manage but will force banks to report additional data quarterly instead of yearly. Frequency of calculation of the FC It is unclear whether the update of the Fi￾nancial Component will be synchronised with the proposed timing of the update. The update of the Financial Component has to be done at the time the BI is up￾dated. No changes made. Responses to questions in Consultation Paper EBA/CP/2024/05 Question 1. What are your views with regards to the proposal for the ILDC component? Please explain and provide arguments for your answer. Asset Component (AC) – F18 impairments (Article 3 of the RTS on BI items) (p. 34):
The described ‘total assets’ comprise gross carrying amount positions and carrying amount positions. However, total assets are defined as carrying amount. In order to de￾liver reliable data, all required positions which relate to template F18.00 should in￾clude column 0130 ‘accumulated impair￾ment’.
Article 314(2) of the CRR states that the
Asset Component (AC) is based on the
‘total gross outstanding’ of certain as￾sets. Therefore, the RTS on BI compo￾nents reflects this approach. While the assets included in the Balance Sheet are typically expressed at their carrying amount (which already includes the accumulated impairment), the ob￾jective of the AC within the BI is, how￾ever, to refer only to the gross outstand￾ing nominal amount of those assets that
Article 3(d) of the RTS (and
the related ITS) amended to clarify that, the definition of interest-earning assets in the RTS/ITS, also refers to cases where derivatives do not generate or accrue inter￾est but have a similar flow to the P&L (e.g. Interest Rate derivatives, where the flow to the P&L is given by the dif￾ference between the fixed and variable legs)

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK have an impact in the Interest Compo￾nent (IC) which are known as Interest Earning Assets (IEA). According to the IFRS 9, the interests stemming from the IEA are calculated based on the nominal amount with the relevant interest rate (typically at amor￾tised cost). To obtain the carrying amount, then the Expected Credit Loss, ECL, of relevant stage (1, 2 or 3) is con￾sidered. So, the impairment is not rele￾vant, since the AC is not looking for the carrying amount of the financial instru￾ments in the Balance Sheet but for the IEA irrespective of the ECL. AC – F18 accrued interests In rows related to interest-bearing assets, the standard gives reference to gross carry￾ing amounts in F18. As it is very well known, the gross carrying amounts include principal amounts that bear the interest and accrued interest, which is the interest itself gener￾ated by the principal amount. Considering the idea of the regulation that, in essence, wants to cap the amount of net interest in￾come with 2.25% of the interest-bearing as￾sets in order to avoid unwarranted opera￾There are three points to be considered:

• the BCBS calibration of the coefficient
  for the interest-bearing assets (0.0225) was done by considering those assets, as reported in the Basel III monitoring exer￾cise carried out by the BIS. Those assets were reported by not disentangling the principal amounts from the accrued in￾terests; therefore, the same aggregate should be used for the calculation of the No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK tional risk amounts derived from high-inter￾est-margin countries, we believe that the entities when deriving the amounts from their F18 reports should isolate the amount of interest accruals included inside the gross carrying amounts in order to avoid double counting. This exact same concern applies to debt securities as well. BI regulatory capital (i.e. if a different ag￾gregate should be used, this would be in￾consistent with the 0.225 coefficient cal￾ibrated by the BCBS);

• the low materiality of the accruals with
  regard to the principal amount of loans/total assets;
• in FINREP it is not possible to disaggre￾gate into the assets side the principal
  amount from the accrued interest pend￾ing being earned in the P&L account.
  AC – Cash balance at central banks and other demand de￾posits The respondents had several comments re￾garding this position:
• Article 3 (a) of the RTS and correspond￾ing Article of the ITS state that the
  ‘gross carrying amount of cash balance at central banks and other demand de￾posits’ is also part of the sum that de￾termines the Asset component. In our view this item should be removed from the corresponding component lists.
• The position ‘a) Cash balances at cen￾tral banks and other demand deposits’
  does not contain ‘cash on hands’ (ref.
  F01.01. Cash, cash balances at central banks and other demand deposits).
  Cash balance at central banks and other demand deposits should be included, since they typically generate interest in￾come. Cases where interest is not gener￾ated are marginal. ‘Cash on hands’ is not considered either in the IC or in the AC within the RTS on BI. The balance sheet line that is being considered is ‘Cash balances at central banks and other demand deposits,’ which is related with F.01.01 rows 30&40. No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK

• The definition of ‘interest-earning as￾sets’ still contains a substantial portion
  of assets which are non-interest earn￾ing, primarily from brokerage receiva￾bles (predominantly settlement bal￾ances) and non-interest earning depos￾its with central banks and other banks. Specifically, we suggest that for the two relevant FINREP items (F18_010_005 Cash balance at central banks and other demand deposits as well as F18_010_070 Loans and advances), ad￾ditional clauses (‘only those earn￾ing/bearing interests’) like derivatives (FINREP F_1.1_10_60) shall be intro￾duced to only capture the interest￾earning parts, ensuring an adequate measurement. AC – Derivative contracts Respondents made the following sugges￾tion to replace the FINREP cells listed below with other ones, as they better fit into the definition contained in the ITS:
• From Financial assets held for trading – De￾rivatives (F01.01_r0060_c0010 – only those
  earning/bearing interests), Trading Finan￾cial Assets – Derivatives (F01.01_r0092_c0010 – only those earn￾ing/bearing interests) The objective of the FINREP mapping is to get into the IEA all the interest rate derivatives and not only those pointed out by tables FINREP F10/F11, which might not include all the range of deriv￾atives contracts institutions can have. This is the reason why the mapping is done with Table F1.01 instead of the breakdown tables F10&F11. No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK To Financial assets Held for trading and trading – Interest Rate (F10.00_r0010_c0010) AND

• From Derivatives – Hedge Accounting
  (F01.01_r0240_c0010 – only those earn￾ing/bearing interests) To Derivatives – Hedge Accounting – Assets – Interest Rate (F11.00_r0010_c0010) AC – Lease Assets There is a need to check for double count￾ing. The row ‘profits from leased assets, in￾cluding gains from lease modifications’ and ‘losses from leased assets, including losses from lease modifications’ are mapped to:
  (i) F02.00_r0425_c0010 (only from leased assets) and (ii) F45.3_r0040_c00010/c0020 (only from leased assets).
  Annex V Reporting on Financial Infor￾mation states that ‘it shall include the
  amounts arising from adjusting the gross carrying amounts of financial assets to reflect the renegotiated or modified contractual cash flows’. For a financial lease contract, a financial asset is ac￾counted so if a renegotiation occurs, the impact of such a renegotiation related to the financing of a leased asset should be accounted for here. No changes made. AC – Lease Assets Regarding F02.00_r0425_c0010, we noted this cell is linked to ‘Modification gains and losses, net’. According to Annex V Reporting on Financial Information ‘it shall include the The cells mentioned (F45.03_r0030) are already mapped by a different item, so it No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK amounts arising from adjusting the gross carrying amounts of financial assets to re￾flect the renegotiated or modified contrac￾tual cash flows’. In our view this concept does not refer to leased assets and in con￾sequence it should not be considered in the mapping tool. is not possible to use these cells for this mapping. The EBA proposal with regards to (i) F02.00_r0425_c0010 (only from leased assets) is appropriate because – accord￾ing with IFRS 16 para. 67-69 (similar to the former IAS 17, no longer valid), when the bank is the lessor in a finance lease contract, a financial asset should be accounted for, and if there is a sub￾stantial renegotiation of the key terms of the lease contracts according with IFRS9 there could be a gain/loss in the P&L. AC – Leased Assets Regarding F45.3_r0040_c0010/c0020, these cells should be linked to F45.3_r0030_c0010/c0020 ‘operating leases other than investment property’ in￾stead of the cells F45.3_r0040_c0010/c0020 ‘Other’, consid￾ering it is asked to include only leased as￾sets. F45.3_r0040_c0010/c0020 ‘Other’ is kept, since it could encompass residual balance related to operating leases other than Investment property, which are not included in F45.3_r0030_c0010/ c0020 ‘operating leases other than in￾vestment property’. No changes made. AC – Leased Assets The mapping on ILDC component requires identifying the ‘assets leasing component’ in the FINREP items. Clarification would be greatly appreciated on the indications in In the Asset Component, all assets from leases are included (FINREP templates F21 + F42). No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK terms of references to the phenomenon and what is meant by ‘leased asset’ that are not clear in the current FINREP reporting framework. Given the previous request, it would be more appropriate to use the inter￾nal accounting system to identify the ‘assets leasing component’. IC – Leased Assets Within the Asset Component, the following elements should be considered as ‘leased assets’:

• leases in which the institution is a les￾see, falling within the scope of IFRS16;
• operating leases where the institution
  is the lessor and therefore the asset continues to be represented under its own balance sheet items. Consequently, regarding the related items included in the IC component, the inclusion of the two following items of income state￾ment would not seem applicable, as they typically are related to financial credits, in￾cluding the financial lease in which the bank is a lessor (out of scope according to the el￾ement to be included within the Asset com￾ponent explained above):
  Indeed, according to the L1 text, the IC includes finance income from financial leases and income from operating leases and profits from leased assets, minus the institution’s interest expenses from financial and operating leases, and de￾preciation and impairment and losses from only operating leases. Therefore, the RTS and the ITS should be modified on the interest expenses side by clarify￾ing that:
• depreciation, impairment and losses
  only refer to operating lease assets;
• losses from ‘lease modification’ should
  not be included in the mapping, since they refer only to financial leases (F02.00_r425_c010 should be elimi￾nated from the mapping). RTS and ITS amended in or￾der to clarify that those losses, depreciations and impairments should refer to only operating leases. Moreover F02.00_r425_c010 elimi￾nated by the mapping in ITS,
  Article 2, i) since it refers
  only to financial leases.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK

• the ‘Modification gains or (-) losses,
  net’ of financial leasing contracts where the institution is a lessor;
• the ‘Impairment or (-) reversal of im￾pairment on financial assets not meas￾ured at fair value through profit or loss’
  relating to financial leases in which the institution is a lessor.
  Dividend Component (DC) Regarding Article 4 ‘Dividend component’ of the RTS on BI items: ‘The dividend com￾ponent shall include dividend income from equity instruments and investments', CRR
  Article 314(2) states that dividends from
  stocks not consolidated in the financial statements of the institution, including divi￾dend income from non-consolidated subsid￾iaries, associates and joint ventures, are not included in the dividend component. The draft RTS Article 4 should therefore be clar￾ified by adding the same statement of scope included Article 314(2) CRR.
  Article 314(2) of the CRR clearly states
  that dividend income includes dividends from not consolidated subsidiaries, as￾sociates and joint ventures. No changes made. IC and Other Operating In￾come (OOI) – Profits from leased assets Double counting: Interest income ‘(k) prof￾its from leased assets, including gains from lease modifications’ F45.03_r0040_c0010 The EBA acknowledges the point.
  Article 5(b) of the RTS (and
  the related ITS mapping) amended to clarify that ‘in￾come from other income’ is not ‘‘not due to leases’).

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK (only from leased assets) versus other oper￾ating income ‘(b) income from other in￾come’ F45.03_r0040_c0010 (in total). IC and AC – ASA clause There is no reference to Articles 314(3) and (4) of CRR regarding the possible derogation from Article 314(2) as in the draft ITS on su￾pervisory reporting for operational risk (EBA/CP/2024/07). While Article 314(3) is written in the context of ILDC, it reads as if – provided the condi￾tions are met – an institution can apply ASA instead of BIC to calculate its own funds re￾quirements for operational risks in the near future. Clarifications should be added (crite￾ria, requirements) on how to apply Arti￾cle 314 (3). Insofar as an institution applies the new framework, the calculation of the ILDC shall be carried out in line with the pro￾visions provided in the present RTS and ITS. Should an institution apply the der￾ogation in line with the requirements in
Article 314(4) of the CRR, the calculation
should be carried out in line with the version of the CRR applicable on 8 July 2024. Nonetheless, clarifications on this topic are provided in the instructions associ￾ated with the ITS on Supervisory Report￾ing, which can be consulted here. No changes made. ILDC and FC – ‘clean’ vs ‘dirty’ price Regarding the determination of the ILDC component and the Financial Component, it appears that institutions using what is known as the ‘clean price’ to produce the FINREP reporting might be penalised com￾pared to institutions using the ‘dirty price’ approach. The application of the clean or dirty price approaches constitutes an ac￾counting option for the institutions. Be￾sides, it should be consistently applied in FINREP for all financial instruments measured at fair value through profit or loss and for hedging derivatives classi￾fied in the category ‘hedge accounting’ (see FINREP Annex 5, Part 2, para. 31). No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK Institutions using the ‘clean price’ approach reclassify interest income & expenses and dividend incomes from gains and losses from instruments held for trading or instru￾ments designated at fair value through profit or loss to interest incomes & expenses and dividend income within F02.00. This does not constitute an accounting choice or method, but a reporting reclassification. These reclassifications are made for FINREP reporting purposes only. However, in a situation where the P&L of the trading book of an institution would be negative, this reclassification would result in: i) deepened loss of the P&L of the trading book, and ii) an increase in the amounts of dividend incomes (as for example dividend revenues stemming from equity instru￾ments measured at FV in trading book would be reclassified in dividend income). That will mean that an institution using the ‘clean price’ approach for FINREP would be penalised compared to an institution using the ‘dirty price’ approach, as, considering the same P&L profile, in case of negative P&L of the trading book, one institution us￾ing ‘clean price’ would see its FC (based on As a consequence of this, the BI, as an accounting-based method, mirrors the P&L in order to calculate the relevant components, avoiding the possibility of arbitrage between both options just to reduce capital requirements.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK absolute value) increased by the amounts related to dividend revenues or net interest and its ILDC increased by the same amount, where another one using ‘dirty price’ would not suffer from this effect. Respondents ask that institutions be al￾lowed to neutralise the negative impact of the reclassification made for FINREP pur￾poses (with the same reclassification mech￾anism as the one used for AA to PBA ap￾proach but allowing reclassification of divi￾dend revenue and interest incomes/ex￾penses from ILDC to FC). ILDC vs Services Component (SC) Calculation of capital requirements for op￾erational risk should be neutral in terms of business models and ensure that the calcu￾lations do not favour certain business mod￾els over others. New and innovative busi￾ness models are disfavoured in the opera￾tional risk calculations, as due to the incon￾sistent use of minimum function for ILDC and maximum function for the SC, in combi￾nation with an accounting-based approach, there is a risk of double counting the risk for non-interest assets which generate fee in￾come. The CRR does not allow the BI calcula￾tion to be modified based on business models; therefore no distinction for business models can be made in these RTS or ITS. In addition to this, and as mentioned above, in the BCBS calibra￾tion of the coefficient for the interest￾bearing assets (0.0225), those assets coming from accrued fees not yet earned into the P&L – due to the low ma￾teriality of these fees in comparison with the principal amount of ‘Loans and ad￾vances’ or Total assets – were consid￾ered within the ‘Loans and advances’. It No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK Strictly using an accounting-based approach leads logically to the inclusion of all loans and advances on the balance sheet in the AC. This is not consistent with the purpose of recital (3) of the proposed RTS, which state that the Asset component should in￾clude ‘all assets that generate interest in￾come or interest expenses’. Many modern banks, such as neo banks or free current account banks, have business models that rely on fee income on short￾term loans. These loans are not seen as gen￾erating interest in accounting terms, and the income from these loans are accounted for as fee income. However, the loans will be reported as loans and advances (accord￾ing to FINREP terms) on the balance sheet. Depending on the size of the different com￾ponents, the inconsistent application of a minimum function in the ILDC and a maxi￾mum function of the SC carries a high risk of double counting capital requirements for the same loans. This happens because the loans could be included in the Asset compo￾nent in the ILDC, while the fees generated from the loans are also included in the SC. should also be noted that in FINREP it is not possible to disaggregate accrued fees not yet earned into the P&L from ‘Loans and advances’. As a consequence of the above, the BI considers fee &commission income in the SC and interest income expenses in the ILDC as it should mirror the account￾ing criteria.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK The EBA is asked to instead consider the full yield of the assets and include all income re￾lated to the assets in the IDLC, whether from interest or fees. At minimum, the EBA should exclude non-interest-bearing assets from the AC. Question 2. What are your views with regards to the proposal for the Services component? Please explain and provide arguments for your answer. Outsourcing fees – defini￾tion of financial services There are no exact definitions to the in￾structions. Example: the outsourcing fees paid for the supply of non-financial services should be excluded from the business indi￾cator. In C16.02 r0380 OUTSOURCING FEES that were paid for the supply of FINANCIAL service separately in administrative ex￾penses in FINREP 02_ c0010 r 0360/0380 should be included. What is exactly the def￾inition of financial services? In the BCBS ‘Basel III: Finalising post-crisis reforms’ from December 2017, it is stated on p. 135 that non-financial services (e.g. logistical, IT, human resources) should not be in￾cluded in ‘fee and commission expenses’ and thus not be included in the BI. Should While the comment refers to instruc￾tions and it is therefore implied the comments are made to the ITS on Su￾pervisory Reporting, which is outside the scope of this final report, point is taken on the need to further clarify what is meant by ‘financial services’. Although the RTS do not provide a defi￾nition of financial services, for the pur￾poses of these RTS/ITS, financial ser￾vices can be represented by the list of activities indicated in Article 7 of the RTS, which are based on the breakdown of activities as in FINREP Table 22.1. An￾cillary activities to the financial services, RTS and ITS amended so to:

• point out to the items ‘Fee
  and Commission Income’ and ‘Fee and Commission Expenses’ in Table 02 (F.02.200 and F.02.210), ra￾ther than to their break￾downs in Table 22.1;
• clarify that ancillary activi￾ties to the financial services,
  such as IT activities neces￾sary to execute a financial service, should be included in the definition of financial services and hence assigned

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK all IT connected services, even if necessary to execute a financial service, be excluded? Examples of ‘outsourcing fees for the sup￾ply of financial services’ would be helpful here (i.e. if 'financial services' refers to banking services, we understand that these are generally part of net fee and commis￾sion income and not part of administrative expenses (row F02.00_r360_c100)). The ITS on the mapping to supervisory re￾porting under Article 314(10) of the CRR in￾clude in the calculation of the BI items re￾lated to F.22, which include F.02 items. such as IT activities necessary to exe￾cute a financial service, should be in￾cluded in the definition of financial ser￾vices and hence assigned to this item of the business indicator even though they are reported in a different FINREP item (e.g. administrative expenses). to this item of the business indicator even though they are reported in a different FINREP item (e.g. adminis￾trative expenses) Fees and commissions – gross vs net values The proposed approach to calculate the SC currently will factor into it gross fund distri￾bution fee & commission income amounts (as opposed to net fee and commission in￾come), which is not appropriate, especially for an institution with fund distribution ac￾tivities. Respondents believe banks’ actual revenue and a true indicator of their own business activity/own operational risks is the net amount retained by the banks for their efforts and activities within the overall process, not the gross revenue collected. The use within the BI of the Fees & Com￾mission and Other Operating (income and expenses) according to their gross value instead of the net value has been set in the BCBS final standard and con￾sistently adopted in the CRR legislative text. Amendments to the CRR provisions are out of the scope of these technical standards. Moreover, Article 314(5) of the CRR states that Fee and Commission Ex￾penses must include expenses paid for No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK We would like to highlight the unwarranted consequences of SC calculation for asset management activities. Indeed, inducement on fees and commis￾sions for investment and ancillary services – as defined in MiFID 2014/65/EU Articles 23 & 24 – are perceived by a ‘receiving party’ (e.g. an institution providing advice) from a ‘paying party’ (e.g. a fund/asset manage￾ment company), in relation to a service pro￾vided to the end client (e.g. investment ad￾vice). The paying party ‘retrocedes’ a por￾tion of the fees and commissions it collected from the end client, as agreed with the re￾ceiving party and as displayed to the end cli￾ent. The inducement is actually ‘flowing through’ the paying party. This is very differ￾ent from outsourcing services. Therefore, to avoid the double counting of such inducements, we believe that EBA should consider that:

• The party receiving inducements should re￾port them given that they are commissions
  and fees remunerating its advisory service to the end client.
• Conversely, the party paying inducements
  out of the fees and commission revenues receiving advice and services, and no in￾dication is provided to exclude expenses from asset management.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK received from the end client should report its fee and commission income net of the relevant inducements, and not consider such inducements paid as a gross expense. Fees and commissions – in￾come from loan commit￾ments given By comparing the list of items as for draft RTS ‘on the components of the BI under Art. 314(9) of the CRR’, Art. 7 with the list of items as for draft ITS ‘on the mapping of the BI components with corresponding supervi￾sory reporting under Art. 314(10) of the CRR’ some respondents noticed that the RTS list does not include the item ‘fee and commission income from loan commit￾ments given’ (which is included in the ITS list, mapped with F22.01r0200_c0010 FINREP item). The EBA is asked to clarify whether this item should also be included within the RTS list. The EBA acknowledges the point.
Article 7 of the RTS
amended so to also include the item ‘fee and commis￾sion income from loan com￾mitments given’. OOI – recovery of adminis￾trative expenses Looking at the way the OOI is treated under the SC, respondents clarified they under￾stand that the recovery of administrative expenses, including recovery of payments on behalf of customers (e.g. taxes debited to customers, stamp duty, substitute tax and other recoveries), should not contrib￾ute to any of the items requested for the SC, although Article 314(5)(d) provides for such The EBA acknowledges the point.
Article 5 of the RTS
amended to clarify that re￾covery of administrative ex￾penses should not feed OOI.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK exclusion. It would be helpful if EBA could clarify this explicitly in the text. Other operating expenses (OOE): granularity of opera￾tional risk losses Some respondents state that operating ex￾penses due to operational risk events, as broken down in Article 6 (1)(d), will be diffi￾cult to report because their breakdown is based on cost accounting and cannot be read directly in FINREP. By way of illustra￾tion, the following examples are men￾tioned:

• overtime paid to employees following an
  operational risk event;
• the use of temporary workers who could
  be allocated within overhead costs.
  These respondents state that getting this in￾formation directly via the General Ledger is connected with high costs due to new re￾leases. It requires duplicating any account￾ing entries between the ones linked to op￾erational risk and those that are not. They also state that no mapping to FINREP is proposed in the draft RTS, not clear where data on operational risk losses should be taken from. Moreover, the question arises
  Article 314(5) of the CRR requests to in￾clude in Other Operating Expenses ex￾penses and losses due to operational
  risk events. The breakdown as in Arti￾cle 6(1)(d) on the operational risk losses (and the related 16.03 Table) is intro￾duced in line with the CRR text and it is crucial for supervisory purposes, since it permits knowing the number of financial impacts due to operational risk events accounted for in an institution's P&L. Without this breakdown, there would be no possibility of getting this information and to assess if this relevant item of the BI is properly fed. Many institutions have in their data warehouse several flags for single trans￾actions, which permit them to identify which transaction is due to an opera￾tional risk event. Institutions which have implemented an operational risk loss data collection (either for supervisory reporting purposes or for risk manage￾ment purposes) can use the loss data￾No change in the breakdown of Article 6(1)(d).

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK as to which methodology or distribution keys to use to allocate the operating ex￾penses. They also wonder whether this breakdown of all operational risk events fi￾nancial impacts (and the related Reporting
Table 16.03) should be in line with already
reported templates on loss data, C17.01 and
C17.02. Should it be the same source? What about thresholds? Currently, most respond￾ents are collecting data with operational risk loss, also lower than EUR 20 K. Some of them recommend providing an op￾tion to substitute the relevant FinRep lines with the total loss amount as documented in the OR Events recording database. Other institutions state that this breakdown is only necessary if an institution is obliged to collect data in accordance with Arti￾cle 316 f. of the CRR III, i.e. to institutions with a business indicator (of EUR 750 mil￾lion or higher). In case that such a detailed breakdown is re￾quested, most institutions observe that it would be difficult to provide it for the last 3 years (2022, 2023, 2024), therefore, they base to support the breakdown of oper￾ational risk impacts as requested in Arti￾cle 6(1)(d) and the completion of the re￾lated Reporting Table 16.03. From a financial reporting perspective, some ‘thereof’ values on operational risk losses are already requested in ded￾icated FINREP tables:

• Other Adm. Expenses – Litigation Ex￾penses not covered by provisions
  (FINREP 16.8, r080, c010);
• Provisions due to Pending Legal Issues
  and Tax Litigation (FINREP 43, c040);
• Provisions due to Other Provisions
  (FINREP 43, c060).
  The EBA is aware that:
• this is a new information requirement
  for some institutions; hence it could be necessary for them to spend time and resources to implement routines for ex￾tracting the needed information from the accounting systems;

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK suggest implementing it on year by year ba￾sis, and/or required on a ‘best effort’ basis, at least until the calculation at 31.12.2027.

• it could be difficult to retrieve this in￾formation for the past few years, espe￾cially where these routines are not im￾plemented;
• according to the CRR text, institutions
  with a BI < EUR 750 M will not be re￾quested to calculate the annual opera￾tional risk loss. However, some of them are still requested or invited to report operational risk losses (C17 templates) for supervisory purposes (see ITS on Su￾pervisory Reporting);
• while the calculation of the OOE would
  ideally require including operational risk events from any financial impact, loss databases for reporting/internal pur￾poses (including those that will have to be established) usually envisage an insti￾tution data collection threshold (typi￾cally smaller than those envisaged by the CRR, i.e. EUR 20 000 and EUR 100 000). Retrieving operational risk losses below such internal thresh￾olds could represent a further hurdle. While the breakdown of the financial im￾pacts due to operational risk events as in

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK
Article 6(1)(d) of these RTS and ITS
should be kept, as this is a minimum info for supervisors to assess whether the Ar￾ticle 314(5) of the CRR is properly ful￾filled, the institutions observations on the completion of Tables 16.02 and
16.03 will be considered when finalising
the related ITS on Supervisory Report￾ing.
OOE – hyperinflation The row ‘expenses from other expenses’, is linked to ‘other operating expenses’ (F45.3). Conceptually hyperinflation, which in some cases means a significant contribution, is recorded under this heading according to the applicable regulations. On the other hand, the standard giving reference to these lines does not give any further clarification applying to institutions that apply hyperin￾flation accounting. Therefore, the questions arise about whether or not to consider the
part of this item attributable to hyperinfla￾tion accounting adjustments in the calcula￾tion of BIC.
OOE includes other items not related to operational risk, such as Article 6 (1), (a) and (c). This does not mean that these items need to be excluded from the cal￾culation. No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK OOE – provisions due to op￾erational risk We kindly ask you to clarify the item ‘provi￾sions or (-) reversals provisions’ due to op￾erational risk. Please clarify what type of items are expected to be included under this line. This item is already included in FINREP. See, for example, what has to be re￾ported in FINREP 43, in accordance with IAS 37.14:

• Provisions due to Pending Legal Issues
  and Tax Litigation (FINREP 43, c040);
• Provisions due to Other Provisions
  (FINREP 43, c060).
  No changes made.
  OOE – write down/write off due to operational risk
  Article 317(5) of the CRR states that ‘Opera￾tional risk events that relate to credit risk
  but are not accounted for in the risk￾weighted exposure amount for credit risk shall be included in the loss data set’. Please clarify if the losses due to these events should also be included in the calculation of the BI, in particular of the OOE.
  Article 317(5) of the CRR clearly states
  that boundary losses with credit risk that are not included into the credit RWA should be considered under the opera￾tional risk perimeter. This criterion, alt￾hough addressed to the calculation of the Annual Operational Risk Loss, should also be applied to the calculation of the BIC, so to have an operational risk RWA 1) fully consistent with the Annual Operational risk calculation, and 2) ad￾dressing the fact that these losses, typi￾cally accounted as impairment, are not charged of any regulatory capital on the credit risk side. RTS Article 6(1)(d) amended to also include the sub-item ‘Impairment or (-) reversal of impairment’ and ITS Arti￾cle 1 amended to map this sub-item in the proper FINREP items.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK These boundary losses typically refer to unpaid credit assets due to operational risk events (credit frauds, unenforceable credit contracts, collateral failures, etc.) that have been impaired and are not ac￾counted for in the credit RWA. OOE – mapping of opera￾tional risk losses and leases It is not entirely clear the proposed map￾ping, which requires identifying in the FINREP item the only component connected to the operational risk. We are referring to the mapping of ‘Other operating expenses’ for the following items FINREP:
F02.00_r0370 (due to operational risk and not due to leases); F02.00_r0380 (due to op￾erational risk); F02.00_r0390 (due to opera￾tional risk).
Article 314(5) states that under OOE, an
institution needs to include, among oth￾ers, ‘the institution’s expenses and losses… from operational risk events’. Therefore, any financial impact due to operational risk events should be in￾cluded in the OOE, irrespective of whether it is related to lease assets, or it is accounted for in different items of the BI (e.g. interest expenses) or in items which do not belong to the BI (e.g. ad￾ministrative expenses). RTS amended in Article 6(1), by:

• deleting ‘not due to leases
  (except for the provisions or
  (-) reversal of provisions)’;
• adding ‘interest expenses’
  as the first line of the list of items.
  ITS amended accordingly.
  OOE – recovery from other than insurance Article 6, paragraph 2, of the draft RTS stip￾ulates that ‘For the purposes of point (d), the losses, expenses, provisions, and other financial impacts due to operational risk events shall not be net of any related pay￾Payments of loss amounts, such as those from a correspondent bank after a mis￾transfer (e.g. in force of a gentlemen's agreement between the parties), or from an institution’s employee after an
  Article 6(2) of the RTS
  amended to clarify that re￾coveries other than insur￾ance should be used to net operational risk losses within the OOE.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK ments received from insurance or reinsur￾ance policies purchased’. We would wel￾come the confirmation that this is possible to net payments different from the one re￾ceived from insurance to reinsurance poli￾cies purchased. internal fraud can be received by the in￾stitution, although they are not part of an insurance/reinsurance coverage plan. Such payments can be used to net operational risk losses before these feed the BI. OOE – Operational risk losses – delay in recognition of losses Sometimes an incident is registered a month or more later than its occurrence, sometimes after reporting. What should an institution do in such a case, when the inci￾dent is recognised, for example in 2023, while accounting date of loss is in 2022. In which year should the loss be reported? Is a resubmission expected? Regarding the delays in recording an al￾ready occurred/discovered loss, the ac￾counting principle should be the crite￾rion for calculating the BI; therefore the loss should be included within the BI when accounted for in the P&L and no resubmission is needed. A similar crite￾rion is already included in the C17.01, for losses that refer to previous reporting periods but have been recognised only afterwards; such losses need to be re￾ported conventionally in the first appli￾cable reporting period after the recogni￾tion and no resubmission of previous C17 templates is needed. No changes made. OOE – Operational risk losses – administrative ex￾penses We would like to highlight that there seems to be a discrepancy between Article 314.7 of CRR, which lists the elements that should be excluded from the calculation of the BI,
Article 314(7) of the CRR requests not to
use some items within the BI, e.g. ad￾ministrative expenses. However, Arti￾cle 314(5) of the CRR specifically states No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK and some of the items being requested in Template 16.03. So, while Article 314.7 states that ‘institu￾tions shall not use any of the following ele￾ments in the calculation of their BI’:
(a) ‘Administrative expenses, including staff expenses, outsourcing fees paid for the sup￾ply of non-financial services, and other ad￾ministrative expenses’; (f) ‘depreciation of tangible assets and amortisation of intangible assets, except the depreciation related to operating lease assets, which shall be included in financial and operating lease expenses’; … the Template 16.03 is not consistent with this Article and requests the following fields:

• 0020 ‘Administrative expenses to opera￾tional risk events’
• 0030 ‘Depreciation due to operational risk
  events’ that expenses and losses due to opera￾tional risk events need to be included within the OOE. The RTS clarify that such expenses and losses should be included within the BI, regardless of where they are accounted for (e.g. also in items, such as adminis￾trative expenses, which in accordance with Article 314(7) of the CRR should not be used within the BI).

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK OOE: Operational risk provi￾sions A respondent focuses on Article 6(1)(d)(v), i.e. on the breakdown of financial impacts due to operational risk events when related to ‘provisions or (-) reversals of provi￾sions’ The respondent states that, in case an insti￾tution expects certain operational risk events to happen, which it is unable to pre￾vent, it can book a provision amount (fur￾ther in text: ‘general provisions’) for the es￾timated cost of such an event before the event happens. When the event happens, the ‘general provision’ is released, and a ‘specific provision’ is booked for the exact cost of the operational risk event. In the view of this institution, following the definition of operational risk where ‘opera￾tional risk event’ means any event linked to an operational risk which generates a loss or multiple losses (Article 311a of amending Regulation (EU) No 575/2013), the above￾mentioned ‘general provisions’ should not be considered as ‘operational risk event’ since event has not occurred yet. These ‘general provisions’ are not pending losses in accordance with the given definition (Ar￾ticle 318 (2)(d) of amending Regulation (EU) As long as provisions for operational risk events are estimated in accordance with the relevant accounting framework, these provisions should be included in the BI and explicitly considered in the breakdown of operational risk impacts (Article 6(1)(d)(v)) and reported in the related position of Table 16.03. This is irrespective of whether the provi￾sions are generic or specific, since what is relevant is that:

• these provisions refer only to losses
  due to operational risk events;
• they have been booked on the institu￾tion P&L.
  If, following an operational risk event, an institution books a (initial) generic provi￾sion in the P&L since it is unable to clearly identify the relevant recipi￾ents/stakeholders for that event, that provision needs to be timely included into the BI (and reported in Table C 16.03 040). When specific provisions related to the generic provision will be No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK No 575/2013), since they are already booked on P&L. Following this argumentation, this institu￾tion would not consider these ‘general pro￾visions’ to be considered in the breakdown of Article 6(1)(d)(v) and in the related Ta￾ble 16.03 of the ITS on Supervisory Report￾ing (position 0040). It would report, instead, the specific (indi￾vidual) provisions for events that already happened. Reporting a specific provision for operational risk events will over time con￾sume previously created ‘general provi￾sions’, which are then released (transferred from general to specific provisions). recognised at a later stage, those provi￾sions will replace the generic provision. OOI & OOE – list of items Articles 5 and 6 of the draft RTS should be clarified to cover only items that are not covered by other business indicator compo￾nents but are of similar nature. This concept is already included in Arti￾cle 314(5) of the CRR. No changes made. IPS – implementation The CRR states that income or fees paid within the same IPS can be netted under certain conditions, subject to prior permis￾sion from the competent authority. Could you provide more details on obtaining this
Article 314(5) of the CRR requests the in￾stitution to get explicit permission from
the competent authority to calculate the
SC on a net basis. A condition envisaged in that Article is that the IPS has at its dis￾posal suitable and uniformly stipulated No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK permission, specifically if it needs to be re￾quested to exclude these figures from the SC, and whether permission mentioned in
Article 113(7) suffices?
Also, we request further clarification of the implementation rule regarding the net ac￾counting of provision income and expenses for entities in the same protection scheme and a renewed consultation regarding this matter. systems for the monitoring and classifi￾cation of operational risks. Implementa￾tion criteria for this condition are out of the scope of these RTS. IPS – new members If a new member joins the IPS, does the data then need to be reported for the year it joined only and from then on or is the date retroactively to be adjusted? New members that join the IPS but were in operation (as not IPS) in previous years should compute the relevant BI items according to the three-year aver￾age. In case those members have been in operation for less than three years when joining the IPS, Article 314(8) of the CRR applies. No changes made. IPS – mutualisation Generally, the purpose of an IPS is to protect its members from severe losses that – in the worst case – could lead to the bankruptcy of the concerned institution. Hence, we be￾lieve it should be clarified that only ‘losses exceeding the risk bearing capabilities of a single member of the institutional protec￾tion scheme are subject to mutualisation The clarification on what losses are sub￾ject to mutualisation across IPS mem￾bers is out of the scope of these RTS. No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK across institutional protection scheme members’. Insurance products/services Income and expenses from insurance or re￾insurance business are to be excluded from the calculation of the Business Indicator un￾der CRR. However, Article 16 of the RTS specifies that where these are ‘resulting from the distribution of insurance or rein￾surance products or services’, they shall not be excluded. Given that EU credit institu￾tions are not able to act as insurance provid￾ers [Article 4(1)(1) of the CRR excludes in￾surance undertakings from the definition of credit institution], the clarification included in recital 12 and Article 16 paragraph 1 point (a) of the RTS would invalidate CRR ex￾clusion from the BI of income and expenses from insurance or reinsurance business, as no amounts comply with such characteris￾tics (i.e.: income or expenses from the insur￾ance business in a credit institution not re￾sulting from the distribution of insurance products). Therefore, eliminating this clari￾fication introduced by the RTS would invali￾date Article 314(7)(a) clause in the CRR.
Article 16 of the RTS provides clarity in
relation to the exclusion of insurance in￾come and expenses from the BI. Arti￾cle 314(10) of CRR outlines that income and expenses from insurance and rein￾surance business should be excluded. That is to say that the income and ex￾penses from providing insurance/rein￾surance contracts, by taking the insur￾ance risk where this were possible for an institution, should be anyway excluded. However, the distribution of insurance or reinsurance products (brokering) is a different standalone financial service and for the purposes of operational risk capital, it should be covered in BI. This is not double counting, as the capi￾tal charge associated with underwriting the insurance/reinsurance contract is in￾cluded in Solvency II, while the capital charge associated with any distribution of the insurance/reinsurance contracts is calculated in the BI. No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK Additionally, we would like to note that the Solvency II Directive already includes an op￾erational risk capital charge for insurance and reinsurance products as well as ser￾vices. That being said, not excluding these categories from the Business Indicator (BI) would lead to a capital double counting sit￾uation. Question 3. What are your views with regards to the proposal for the FC? To which extent are you carrying out operations or making accounting choices as referred to under paragraph 2, point a) of Article 9 of this draft RTS? Are you carrying out operations or making accounting choices, other than those specified under paragraph 2, point a) of Article 9 of this draft RTS, that could justify the use of the PBA? Please explain and provide arguments for your answer. Hierarchy of approaches The EBA has retained an accounting ap￾proach as the approach, by default, that in￾stitutions shall apply to calculate the Finan￾cial Component and considered the pruden￾tial boundary approach as a derogation. The EBA RTS, as drafted, might go beyond the CRR requirements by proposing to make the Financial Component defined in accord￾ance with accounting standards the default approach and requires a derogation based The CRR introduces the phrase ‘as ap￾propriate’ in two different Paragraphs of
Article 314:

• Paragraph 6) when defining the ‘trad￾ing book component’ (TC), which has to
  be ‘determined as appropriate either in accordance with accounting standards or in accordance with Part Three, Title I,
  Chapter 3’;
  No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK on several conditions for the use of the pru￾dential boundary approach even though both the definition of the Financial Compo￾nent and the related EBA mandate above require a prudential definition as appropri￾ate. Accordingly, where any condition to use the prudential boundary approach is no longer met, a bank would have to revert to the accounting approach and shall not use the prudential boundary approach in the following three years.

• Paragraph 9), when giving the mandate
  to the EBA to specify ‘the components of the Business Indicator, and their use, by developing lists of typical sub-items, tak￾ing into account international regulatory standards and, where appropriate, the prudential boundary defined in
  Part Three, Title I, Chapter 3’.
  While Article 314(6) of the CRR sets out the two possible criteria to build the TC, based respectively on the accounting or prudential rules, it is left to the EBA the objective of clarifying when it is appro￾priate to use the prudential boundary criteria defined in Part Three, Title I,
  Chapter 3.
  Based on the industry's own feedback, the prudential boundary is appropriate in specific situations where certain types of operations and/or accounting choice cause an unwarranted increase of the Fi￾nancial Component when using the ac￾counting approach. This is presented in
  Article 9(2)(a) of the draft RTS.
  Furthermore, in line with the CRR text, it is appropriate to use the prudential

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK boundary approach where an institution has the means to comply with the re￾quirements in Part Three, Title I, Chap￾ter 3 of the CRR. This is clarified in Arti￾cle 9(2)(b) of the draft RTS. Unwarranted increase of the FC. In the approach proposed in the RTS, the ap￾plication of the PBA is conditional on several criteria, including the presence of certain operations or accounting choices that result in an ‘unwarranted increase’ of the FC when using the AA. This would limit the usage of PBA, while CRR does not favour one ap￾proach over another nor intends to limit the usage of PBA. Furthermore, an unwarranted increase in the TC’s P&L over a certain pe￾riod can be volatile by definition, as it can be impacted by several market factors. An in￾stitution can therefore experience an un￾warranted increase in a given reporting pe￾riod and not experience any in a following reporting period while having similar opera￾tions and accounting choices. The applica￾tion of the PBA should, therefore, not be based on an unwarranted P&L increase in the TC nor be subject to any limitation. In any case, the potentiality of such increase demonstrated ex ante shall be sufficient and would avoid volatility. The final RTS further clarify the concept of ‘unwarranted increase’, in order to ensure its proper interpretation and im￾plementation. In the case of economic hedging, it should not be extended to: a) the P&L of hedging instruments in the trading book, which are not strictly and clearly related to the P&L of hedged in￾struments in the non-trading book val￾ued at fair value through profit and loss in the accounting statement of profit and loss or b) to situations where the in￾stitution does not fully and clearly ad￾here to the rules and conditions envis￾aged by the prudential boundary de￾fined in Part Three, Title I, Chapter 3. In all these cases, the adjustments to the FC should be limited to the amount of P&L related to risks effectively covered by the hedge and matching the account￾ing P&L of the hedged items.
Article 9(2) amended with
reference to the concept of
‘unwarranted increase’ in case of economic hedging and with regard to the re￾lated organisational meas￾ure for the proper calcula￾tion of the FC. Recital 7 added and Recital 8 amended No changes made with ref￾erence to the time period.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK Given the very dynamic nature of trading transactions, the fact that there is no un￾warranted increase in the Financial Compo￾nent in a given year should not preclude an institution from using the prudential bound￾ary approach for the following three years where there may indeed be unwarranted in￾creases due to the use of the accounting ap￾proach. This requirement appears to be above and beyond the requirements of the text. Therefore, we suggest that the EBA adheres to the optionality laid down in the Level 1 text and that, according to the fact that the approach used is consistent from one finan￾cial year to the next, the EBA clarifies the cir￾cumstances under which a passage from one approach to another is permitted. Moreover, the FC, hence the TC and the BC, is the annual average of the absolute values over the last three financial years of the net profit or loss, so only in case that the institution has not observed any unwarranted increase of the FC in three consecutive years (i.e. from t1 to t3), a reversal to the AA (i.e. in t4) is manda￾tory. This period of time is sufficiently long to justify that the certain types of operations and/or accounting choices that had originated an unwarranted in￾crease of the FC are currently no more relevant for the institution, for example, because they have been dismissed. Permanent use of the PBA An impact in terms of RWA between the ac￾counting approach and the prudential boundary approach could only be observed in situations where the TC and the BC are in opposite sign, as the global P&L will be the same in both approaches. That could, de￾pending on the activities of the institution, When the unwarranted increase in the FC no longer exists, the institution can￾not remain permanently on the PBA and has to revert to the AA, since, according to the CRR text, the PBA can be used only ‘where appropriate’ (see # 1) and not freely, i.e. in situations that do not justify its use. No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK happen only on years where large market moves are observed and not every year. An institution should, therefore, be able to choose the PBA on a permanent basis if it considers such an approach as appropriate. It should be noted that the CRR already im￾poses very strict requirements for the man￾agement of the trading book, including for the inclusion of positions (Articles 102, 103 and 104), and equally strict rules to reclas￾sify a trading book position (Article 104a), which contributes to the robustness of the PBA approach. Reversal to AA By construction, regulatory arbitrage will only happen in crisis situations where (i) the accounting approach is chosen (ii) only one of the prudential banking P&L or prudential trading P&L is negative and (iii) the P&L loss of the negative component is partially or to￾tally offset by the positive component (the other one). The introduction of the Arti￾cle 14 ‘reversal to the accounting approach’ is inappropriate. Indeed, regulatory arbi￾trage will be the case where an institution put himself in the incapacity to respect the
Article 9(2) in time of crisis and revert to the
accounting approach.
To avoid regulatory arbitrage in a crisis situation, consistency in the use of a chosen approach is sought. The EBA is mandated to specify the components of the Business Indicator and their use. Clarifying how consistency is defined in the FC context is in line with the man￾date. The reversal from the PBA is mandatory in specific circumstances, i.e. when the conditions that justified the use of the PBA are no longer fulfilled. Considering No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK To avoid continuous changes from one ap￾proach to another, it appears reasonable that when an institution has made the deci￾sion to apply the PBA, it would only be per￾mitted to revert to the AA (or the other way round) if such change is triggered by mate￾rial evolutions of its activity, environment or risk management (for example a change of business model) and after approval from the competent authority only. This would provide the consistency required for having a sound framework for the PBA and would ensure that no regulatory arbitrage is possi￾ble, which, as previously mentioned, is al￾ready prevented by trading book frame￾work of the CRR. the time needed to not observe an un￾warranted increase in the FC calculation to revert to the AA (three years, see the previous comment) and the time con￾straints to remain in the AA once re￾verted (further three years), continuous changes from an approach to another are prevented by definition in the RTS rules. Scope of entities applying a chosen approach According to the draft RTS on the compo￾nents of the Business Indicator, the pruden￾tial boundary approach to be permitted shall apply to all entities of the same consol￾idation group. However, for entities with little or no mar￾ket activities or when accounting portfolios are in line with prudential portfolios, it would be operationally difficult to apply the prudential boundary approach due to the documentation to be provided and due to The CRR rules on the boundary between trading and non-trading books are man￾datory for all institutions, independently from the approach adopted for calculat￾ing the OFR, so data at consolidated level for EU institutions should respect these rules. The condition as stated in previous Arti￾cle 9(2)(c) aimed at requesting an insti￾tution (at either consolidated or solo Previous condition 9(2)(c) removed and replaced by the new point 12(3) to make it clear that the PBA should be applied at the institution level, either at the whole consolidation level or at solo level, and no partial use is possible.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK the policies and procedures constraints compared to the benefits expected, while using FINREP would be easier. Therefore, we believe that institutions should be allowed to choose the appropri￾ate approach in those specific cases, pro￾vided that the approach used is consistent from one financial year to the next and that the approach would change only under spe￾cific or rare circumstances. The proportionality principle should be duly considered, allowing consistent application to be ensured, avoiding cherry-picking at group level without undue implementation costs. In fact, some entities in the prudential Group may have differences between their accounting and prudential perimeters but with limited unwarranted increase of the Fi￾nancial Component. For example, in accord￾ance with Article 325(4) of the CRR, an insti￾tution may use a combination of the simpli￾fied approach with other approaches at consolidated level to calculate the own funds requirements for market risk. For those entities the cost of implementation largely overseed the benefit. The threshold level) to adopt a unique, uniform, ap￾proach (PBA or AA). On a consolidated basis, this means to appropriately treat intragroup opera￾tions and hedges to avoid unwarranted increases/inconsistencies in the calcula￾tion of the TC and BC. For example, where an entity in the group issues bonds (included in the BB), which are economically hedged by another entity of the group through derivatives (in￾cluded into the TB), at consolidated level a PBA can be adopted so that those de￾rivatives are treated as also part of the BB and the opposite P&L flows (of the bond and their hedges) are offset by the FC. The use of the PBA would make sense at consolidated level, since only on the consolidated accounts those in￾tragroup operations should be consid￾ered and, where feasible, their P&L flows neutralised within the FC. A partial use approach of the PBA and the AA at consolidated level is neither desirable nor opportune. Indeed, differ￾ently from market risk OFR in CRR 3 which is a point-in-time stock-based measure, the BI is calculated on the P&Ls

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK proposed corresponds to simplified stand￾ardised approach to calculate the own funds requirements for market risk. through 3 year-long periods of time di￾rectly on consolidated data. Selective choices of the PBA for some entities (or activities) and of the AA for others would open the calculation to cherry-picking and, from an institution perspective, would require complex new data aggre￾gation at consolidated level based on non-homogeneous P&Ls at the individ￾ual level. Similar considerations hold true for a threshold exemption, mirror￾ing financial statement stock asset￾based measure used for market risk OFR in Article 325 of the CRR, or based on the trading activity/portfolio. However, Article 9(2)(c) did not imply that, where an institution uses the PBA at consolidated level, all the entities of the group need to also use the PBA at the individual level. While it is worth re￾peating that the CRR rules on the bound￾ary between trading and non-trading books are mandatory for all institutions, at consolidated and individual levels, the two levels (group and solo) are not nec￾essarily connected. Within a group using the PBA at consolidated level, the enti￾ties should use the AA at solo level as a

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK default approach; there might be cases where some entities could see it appro￾priate to use the PBA at solo level, for ex￾ample, if they are significantly involved in trading activities and fulfil, at solo level, all the conditions set out by Arti￾cle 9. In this case, a specific ex ante noti￾fication should be issued for the use of the PBA at those entities’ level, which would accompany the ex ante notifica￾tion for the use of the PBA at consoli￾dated level. Notification process for PBA – 90 days constraint The 90 days timing constraint related to the intention to use the prudential boundary approach that institutions shall notify to the competent authorities before its implemen￾tation is brought into question. How will su￾pervisors be able to give prior authorisation to institutions so that institutions can apply the prudential boundary approach to calcu￾late the Financial Component, when the fi￾nalisation of the draft technical standard and submission to the Commission are only scheduled for the end of 2024? Indeed, in￾stitutions have 90 days before the imple￾mentation date to notify the supervisors of their intention and submit a documented file (P&L monitoring with the prudential The 90 days’ time constraint refers to the ongoing as a rule and is not provided only for the first-time adoption of the BI. In any case, the entry into force of the draft RTS shall take place 20 days after its publication in the Official Journal of the European Union. Institutions are ex￾pected to align with provisions therein at the closest reporting date following the publication of the legal text and in line with the provisions included in the published legal text. Clarification included in new para. (Arti￾cle 13(3)) as to the need to submit com￾plete information and documentation
Article 13(3) added on the
completeness of the infor￾mation and documentation.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK boundary, impact of the choice of method, independent audit, etc.). However, based on an implementation date of the end of 2024, institutions should be submitting their documented files as early as Septem￾ber, even though the technical standard has not yet been published. for the start of the 90-day notification period. Notification process for PBA – documentation The notification process seems very cum￾bersome, especially as all the requirements (points (a) to (h) of Article 13(2) of the RTS) should be reviewed annually. All these re￾quirements should only be required for the initial notification of the intention to use the PBA and the annual review should be lim￾ited to the independent review on the fulfil￾ment of the conditionsto use the PBA (point (h) of Article 13(2) of the RTS). The information and documentation in￾dicated in paragraph 2 of Article 13 refer to the initial adoption of the PBA. Arti￾cle 13(3) requests to update that docu￾mentation at least on a yearly basis. Such an update should obviously refer to elements/aspects that, in the following years, are significantly changed respect to the initial delivery. The EBA sees merit in clarifying further this aspect in the RTS. Renumbered Article 13(4) amended to clarify what ele￾ments of Article 13(2) should be regularly re￾viewed (eventually updated) and what elements are re￾ferring only to the initial adoption of the PBA. PBA variations We support the option to use the PBA to avoid undue increases in the BI, in accord￾ance with CRR. In the context of the FC and the application of the PBA, we welcome the opportunity to make use of common ac￾counting standards such as IFRS. Overall, we see a PBA based on an account￾ing standard (e.g. IFRS trading income) as The two methods proposed by the CRR and further developed by the draft RTS have distinctive premises: accounting for the AA and prudential for the PBA. No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK the most practical solution as it seems inap￾propriate to deviate from accounting stand￾ards by performing the suggested adjust￾ments to the AA. Not only is accounting data readily available for institutes, but also is it attested, consistent and transparent and thus builds a functionally valid basis for cal￾culating the FC. Question 4. What are your views with regards to the proposal for the specification of the items to be excluded from the BI? Please explain and provide arguments for your answer. CRR3 exclusions vs draft RTS exclusions
Chapter 4 (Article 16 of the draft RTS) is ti￾tled ‘Elements to be excluded from the Busi￾ness Indicator’. However, the chapter lists
what is not excluded, which can be quite confusing to apply. It would be more helpful to have an actual list of exclusions – else, it is difficult to be sure of completeness of ex￾clusions.
Article 314(10) of the CRR provides an
exhaustive list of items that should be excluded from the calculation of the BI.
Article 16 of the draft RTS further specify
these exclusions by providing clarity on items that may be associated with those items listed in Article 314(10) of the CRR, but that should be included in the calcu￾lation of the BI for specific reasons. No changes made. Extraordinary/Irregular items – Profits and losses from the sale of non-trading Realised profits and losses from the sale of non-trading book items and income from extraordinary or irregular items should be ‘Exclusions of profits and losses from the sale of non-trading book items and in￾come from extraordinary or irregular The wording of Recital 1 of the RTS has been amended in order to further clarify the

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK book items/extraordinary items excluded from the Business Indicator. These items do not reflect the institutions’ ‘busi￾ness as usual’ and are not reflective of their operational risk profile and should be ex￾cluded from the BI calculation. For instance, the sale of an ALCO portfolio and it may have been done to cover/balance the struc￾tural balance sheet risk, so it would not make sense to penalise it through opera￾tional risk. items’ is referring to the Arti￾cle 316(1)(b) of the CRR2 (Relevant Indi￾cator) and not to the Business Indicator envisaged by the CRR. The CRR does not envisage the exclusion of extraordinary or irregular items from the BI, following the logic in the BCBS re￾vised standard on operational risk. Arti￾cle 314(5) of the CRR states that OI or OE should be calculated using the institu￾tion's income or the institution's ex￾penses and losses from ordinary banking operations not included in other items of the Business Indicator, but of similar nature. ‘Ordinary banking operations’ refer to ‘business as usual’ banking op￾erations; hence the income and the ex￾penses generated in the course of such operations, irrespective if labelled as or￾dinary or extraordinary, need to be in￾cluded in the most appropriate items of the institution's P&L statement, in line with the criteria established by IAS*, IFRS or, in general, nGAAP standards. These items are then used to build the BI having regard to both the qualifications envisaged by the CRR (see, for example, message and avoid misun￾derstandings, as well as to ensure full consistency with the Legal text.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK the exclusions indicated in Arti￾cle 314(10) of the CRR) and the addi￾tional criteria set out in these RTS. Recital 1 of the RTS states that ‘Only the items representing recurrent banking business operations in an institution’s profit and loss statement, or balance sheet statement, should be included within this indicator’. ‘Recurrent bank￾ing business operations’ as cited in the Recital 1 of the RTS has the same mean￾ing as ‘ordinary banking operations’ in the CRR text, therefore the above-men￾tioned considerations hold true also in case of the RTS. Income and expenses stemming from extraordinary banking operations (e.g. due to M&A and disposal) are typically accounted for in P&L items, which are not included within the BI items (e.g. ex￾penses made to get expert or strategic advice due to M&A are accounted in Ad￾ministrative expenses). For completeness’ sake, it is worth to observe that the definition of OE does not make any reference to ordinary (or

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK extraordinary) operations when the ex￾penses and losses come from opera￾tional risk events. Financial impacts from these events, of any nature and type, need to be included within the BI, even if some of these events have been con￾sidered exceptional/extraordinary in na￾ture and have been excluded from the calculation of the Annual operational risk loss, in line with what envisaged by
Article 320 of the CRR. This rule is set out
in Article 6 (2) of these RTS.

• IAS 1 states that ‘An entity shall not
  present any items of income and ex￾pense as extraordinary items, either on the face of the income statement or in the notes’ based on the underlying ra￾tionale that ‘items treated as extraordi￾nary result from the normal business risks faced by an entity’ as well as that ‘The nature or function of a transaction or other event, rather than its fre￾quency, should determine its presenta￾tion within the income statement’ and that ‘Eliminating the category of extraor￾dinary items eliminates the need for ar￾bitrary segregation of the effects of re￾lated external events – some recurring

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK and others not – on the P&L of an entity for a period.’ Support for list of exclusions We agree with the specification of items to be excluded from the BI. The EBA acknowledges the support for the elements presented in the draft RTS on this topic. No changes made. Question 5. What are your views with regards to the proposed mapping of the BI items to the FINREP cells? Please explain and provide arguments for your answer. Mapping to FINREP: ac￾counting and supervisory view To avoid misunderstandings or false inter￾pretations, EBA is kindly asked to provide more clarifications to properly identify which kind of item or data has to be consid￾ered from an accounting and supervisory point of view. In general, we agree on this approach of using FINREP items for the con￾struction/definition of the BI. However, in some cases, even if the FINREP item refer￾ence is present, we ask that it be used only partially for reporting certain components that are not shown in the official EBA re￾porting framework (for example, the leasing assets component or, more generally, the operational risk component, which is not The BI is an accounting-based proxy so it should be considered in that context. The RTS provide criteria for the mapping of the BI items to the FINREP items, ei￾ther as exact mapping or approximate mapping, to fulfil the qualifications en￾visaged by the CRR for the definition of the BI. In the case of approximate map￾ping, Institutions need to consider the most appropriate data source (e.g. ac￾counting, managerial) to adjust the FINREP item and get the COREP item. No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK defined from an accounting or supervisory point of view). Mapping to FINREP: indica￾tive, not compulsory The mapping with FINREP elements pro￾posed by the EBA should only be indicative and not compulsory. This mapping should be viewed as a way to lead institutions in their own mapping to the BI. This will allow institutions to better ensure consistency, on the one hand, with the prudential trading and non-trading books boundary, and on the other hand with other elements that are not mapped as indicated by the EBA (e.g. ex￾ample given by the EBA on lease expenses). The EBA is mandated by Article 314(10) of the CRR to ‘specify the items of the Business Indicator by mapping those items with the corresponding reporting cells set out in Commission Implement￾ing Regulation (EU) 2021/451 (*14), where appropriate’.. The role of this mapping is to improve reduce variability and increase compara￾bility of the capital requirements be￾tween institutions. No changes made. Mapping to FINREP: avoid adjustments to the FINREP cells The draft ITS provides the mapping of the BI components using 90 FINREP template cells. These proposed FINREP adjustments in the draft ITS make the calculation cumbersome and time-consuming and increases the risk or inaccuracies, whether by understating or overstating these figures. Therefore, we suggest avoiding the use of adjustments to the FINREP cells in the calculation of the BI whenever possible. As indicated in the ITS on BI items, the mapping can be exact or approximate. To be as much homogeneous as possible between institutions in the building of the BI, a mapping with FINREP items has been indicated in these ITS. When exact, the FINREP item should be used for COREP purposes, when it is ap￾proximate (because in such cases the FINREP is not specific enough to permit a 1:1 mapping), the FINREP item indi￾No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK cated in the ITS should be used as refer￾ence and adjusted accordingly based on the institution’s most appropriate data source (e.g. accounting, managerial). While this mapping can be time-con￾suming at the first reporting date, the in￾formation to adjust the FINREP items needed to fulfil the CRR requirements on operational risk should be available to all institutions. Mapping to FINREP: enhanc￾ing clarity Please enhance the clarity of the linkage be￾tween Business Indicator calculation ele￾ments and corresponding entries in the FINREP templates. The goal should be to avoid uncertainties, thus fostering a higher degree of consistency and harmonisation across financial institutions. The mapping aims to provide con￾sistency between institutions. Where a 1:1 mapping is not available, the FINREP item indicated in the ITS should be used as reference and adjusted accordingly based on the institution’s most appro￾priate data source (e.g. accounting, managerial). In addition to the ITS on mapping, clarifications are brought in the context of the row-by-row instruc￾tions accompanying the ITS on Supervi￾sory Reporting. No changes made Mapping to FINREP at solo vs consolidated level: Scope of supervisory reporting There are different scopes of supervisory re￾porting based on a wide range of variables and thresholds (from full FINREP reporting The EBA acknowledges the existence of different scope of supervisory reporting. The following FINREP templates are not always subject to be reported by non￾For those FINREP templates not included in the full FINREP scope, an alternative mapping, less granular, has

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK to Data Points reporting). Besides, the map￾ping proposed is based on the higher degree of granularity, which corresponds to the full FINREP scope of reporting. Thus, for those institutions not reporting on a full FINREP basis, it is not possible to carry out the map￾ping proposed by EBA. full FINREP institutions: F16, F21, F42 and F45. been provided. Thus, the ITS on Reporting will reflect this accordingly. Mapping to FINREP at solo vs consolidated level: nGAAP Some reporting items are named in the FINREP reporting items that are not relevant for some nGAAP users. So, the reporting item cannot be completed in the opera￾tional risk reporting form. The mapping proposed in the ITS on Re￾porting considers both IFRS and nGAAP users (including when nGAAP users are compatible or not with IFRS). No changes made. FX rate With regards to the exchange rate, the cal￾culations of operational risk requirements are based on the average of the values at the end of the last three financial years. Also taking into account that operational risk losses will materialise in the currency in which the company operates, we consider that the exchange rates to be applied in the case of subsidiaries with a currency other than the euro for the purposes of calculat￾ing own funds requirements for operational risk should be the exchange rate applicable at each reporting date. According to FAQ2 of 25.18 BCBS opera￾tional risk standard, the FX rate to use for computing the detailed figures and, finally, the BI is the one of each financial year according with the applicable ac￾counting framework. When time passes (i.e. in subsequent financial years), insti￾tutions would not change the exchange rate that they initially used to convert the data into the reporting currency of the institution. Therefore, as stated in the ITS on Supervisory Reporting (para. 141f of the instructions for completing Template 16.01): ‘For the calculation of the BI (e.g. in the case of institutions No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK having subsidiaries with a currency other than the reporting currency of the institution) institutions shall apply the relevant exchange rate for each of the three years, on which basis the BI is com￾puted, in accordance with the applicable accounting framework. Thus, the ex￾change rate used in the respective year shall not be updated in every reporting date’. However, in the context of subsidiaries in hyperinflationary economies, the ap￾plication of the exchange rate for each year in the BI calculation horizon may be subject to supervisory judgement during the first three years of BI calculation. With regards to the calculation of the BIC and the application of the relevant thresholds, the average FX rate for the period for which the BIC is computed should be used, as pointed out in the ITS on Supervisory Reporting (para. 141g of the instructions for completing the Tem￾plate 16.01): ‘Regarding the application of the thresholds to compute the BIC in accordance with Article 313 of Regula￾tion (EU) No 575/2013, institutions be-

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK longing out of the euro area which re￾port the supervisory information in their local currency, shall use the average ex￾change rate for the period for which the BIC is computed (average for the last three financial years) in accordance with the accounting framework, for the con￾version of the threshold into their local currency’. FINREP mapping of the SC Some FINREP components cannot be sepa￾rated within the FINREP items proposed for the calculation of the Service component, in particular the operational risk items:

• 45.03 (not due to operational risk and not
  due to leases);
• F02.00 (due to operational risk);
• F02.00 (due to operational risk and not due
  to leases);
• F02.00 (due to operational risk and not due
  to leases or to outsourcing fees paid for the supply of financial services).
  For these items there is no 1:1 mapping, so the institutions have to deep dive into their internal accounting to be able to report. In addition, it is stated in the ITS on BI items that the mapping can be exact (1:1) or approximate. This is exactly the case where adjustments to the FINREP items are needed to get the COREP items. No changes made. FINREP mapping of the AC Further clarifications are requested about:
• ‘carrying amount of tangible assets and in￾tangible assets subject to lease’. There is no
  clear correlation between the mapping for the asset component that refers to FINREP Changes in fair value in tangible assets measured using the fair value model are a typical item of Other operating in￾come/expenses (see F45, r.010). No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK templates F21 and F42 (assets subject to lease) and the service component mapping that includes, in the operating income and expenses, also the changes in FV of the as￾sets not subject to lease. Question 6. What are your views with regards to considering the financial statements used for the final valuation as the only reference for the acqui￾sition of activities under the baseline approach (i.e. full historical data)? Please explain and provide arguments for your answer. Financial statements used for final valuation Request to clarify that ‘audited financial statements’ used correspond to ‘external audited financial statements’. The EBA confirms the audited financial statements mean external audited fi￾nancial statements. No changes made. Intragroup transactions Request to be able to adjust the financial statements to eliminate the last three years intra-group transactions between the ac￾quiring and the acquired entities. Eliminating intra-group transactions be￾tween the acquiring and the acquired in￾stitutions during the last 3 years is rea￾sonable. Actually, the RTS does not pre￾vent from doing this. No changes made. P&Ls consolidation The calculation of the BI adjustment should not be an addition of the P&L items of both entities in the FINREP because there could be some restructuring. While consolidation is not synonymous with arithmetic addition, when referring to business restructuring prior to an M&A, this is the purpose of the alterna￾tive approaches proposed: to consider the last accurate information available to institutions providing an accurate pic￾ture of the financial status. No changes made. Please re￾fer to Articles 1(2) and 1(3) of the corresponding RTS.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK Timing of adjustment to BI One respondent suggested adjusting the BI only after the first consolidated financial statements. The objective of the RTS is to carry out the adjustment to the BI before the final consolidated financial statements. Even if consolidated financial statements changed in the year after the acquisi￾tion, the statements at the time of the M&A provide preliminary figures to be used in accordance with the ranked al￾ternative approaches. No changes made. FINREP Three comments related to FINREP: a) split trading book and banking book involve high effort; b) raises question about the FINREP mapping for individual level vs consolidated level. c) asks the FINREP mapping to not be compulsory. Those comments have been moved to the FC section of the feedback, as it di￾rectly addresses this topic and is not a di￾rect consequence of BI adjustments. No changes made. Question 7. What are your views with regards to the proposed three alternative calculation approaches instead of a unique alternative approach to be defined? Please explain and provide arguments for your answer. Alternative approaches Most of respondents took the view that it would be excessively burdensome to apply the three alternative approaches. They rec￾ommend various options:

• 1. Rank the options: i) ‘c)’, and if not
     possible, ’a)’, and then, if not possible,
     The EBA acknowledges the comment.
     With a view to streamline and enable the calculation of the adjustment post￾M&A, a simplification and hierarchy of the approaches provided in the CP were carried out:
     Changes made to the legal text reflect the simplified methodology presented in the EBA analysis column.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK ‘b)’ ; ii) ‘c)’ or ‘a)’, and if not feasible, ‘b)’ as a fallback solution.

• 2) Unique alternative approach, either
  ‘c)’ or ‘a)’. For the application of option
  ‘a)’, one respondent suggests to only take the first financial statement post￾M&A instead of using the entire infor￾mation that is available and accurate as mentions in Article 1(2)(a). In addition, some respondents suggest al￾lowing method ‘c)’ on a general basis as long as the M&A factor is below 1.1, without any notification requirement. Since approaches ‘a)’ and ‘c)’ are quite similar, only method c) should be kept. Given that the approach ‘b)’ is the most conservative, the text should indicate the use of the approach ‘c)’ first, and then, only if this approach is not feasible due to lack of data, the approach ‘b)’ could be used. This also implies deleting approach ‘a)’. Calculation of the M&A fac￾tor One respondent wants to clarify how to compute the M&A factor (method ‘c)’), e.g. which year/period. The RTS provides the information (‘using the latest available and accurate finan￾cial information in relation to the merged or acquired entities or activities’ – Article 1(2)(c)), and also an example in
  Table 3 of the Background and rationale
  section. Additionally, the M&A factor
  approach described in Article 1(2) of the
  RTS calls for the use of the Net Operating
  Income mapped with FINREP.
  No changes made.
  Notification
  Some respondents asked for clarifications about the notification procedure (channel and timeline). It is expected that the procedure is the same as other notification requests: us￾ing the usual official communication No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK channels used with the relevant compe￾tent authority/jurisdiction. Question 8. What are your views with regards to not providing any alternative method but instead adjustments to the effective perimeter of the disposal? Please explain and provide arguments for your answer. Treatment of disposed enti￾ties in case of absence of permission One respondent wanted to clarify the ef￾fects of the absence of permission and how to consider the disposed entities. In the absence of permission, there is no requirement to recalculate the business adjustments. Therefore, the disposing institution will calculate the BI on histor￾ical financial statements and the dis￾posed entity will be gradually eliminated from the computation. No changes made. Authorisation procedure (disposal adjustment) One respondent suggested applying the ‘si￾lence equals acceptance’ principle: after a 3-month period, the permission would be granted if no answer has been provided by the relevant competent authority. In line with the CRR, permission needs to be granted in order to exclude disposals from the BI. Therefore, a reply from the relevant CA is needed. No changes made. Question 9: What are your views with regards to the inclusion of a threshold? Please explain and provide arguments for your answer, as well as, if applicable, further evidence on situations where BI adjustments, as set out under Articles 1 and 2, would not be feasible or deemed excessively cumbersome, and identify potential consequences on the dynamics of the European financial markets. Threshold on M&A Respondents pointed out how burdensome the process is, in the absence of any materi￾ality threshold. Regarding mergers and acquisitions, the complexity of the adjustments to the BI due to M&As lies in the methodology No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK used in order to carry out the adjust￾ments. Given the simplified methodol￾ogy to be used in case of adjustments due to M&As, particularly in cases of data unavailability, as presented in par￾agraphs 41 to 48 of the Background and Rationale section of this final report, coupled with the fact that a materiality threshold for adjustments to the BI due to M&As would only temporarily delay the impact on capital requirements for a period of 1 to 3 years, the EBA has deemed it unnecessary to introduce such a threshold. Threshold on disposals Several respondents suggested introducing a threshold also for adjusting the BI post￾disposals (i.e. a threshold below which there is no need to ask for permission for making adjustments), whereas one re￾spondent suggested not implementing a threshold on disposals. It is understood the burden in the pro￾cess for adjusting the BI post-disposals is higher, as the CRR requires institutions to ask for permission from the relevant competent authority before adjusting the BI. The EBA therefore proposes the intro￾duction of a materiality threshold below which institutions can proceed with ad￾justing the BI post-disposals even if they have not received a written supervisory permission. A threshold on disposals has been added in the corre￾sponding RTS.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK Threshold on intragroup transactions in the context of M&As Some respondents suggested implementing a special threshold on intragroup transac￾tions (i.e. no adjustments at subsidiary level if the operations do not represent more than 5% of the NOI group), while one other respondent seemed to take the view that, on the contrary, operations between enti￾ties of the same group should be adjusted without permission. As intragroup transactions are expected to be handled as part of the consolida￾tion process, a threshold on this type of transaction is not necessary. No changes made. Question 10: What are your views with regards to the basis for the calculation of the threshold on M&As? Please explain and provide arguments for your answer. Threshold on M&A All respondents took the view that the threshold would be expressed as a percent￾age of NOI or M&A factor (which is nearly the same), with the exception of one re￾spondent who suggested the threshold should be expressed as a percentage of CET1. Concerning the level of the NOI/M&A factor, several approaches were suggested:
four respondents suggested 2%; one re￾spondent suggested 3%; three respondents suggested 5%; one respondent suggested 10%. Not applicable, given that a threshold for BI adjustments post M&As will not be implemented (see EBA analysis on ques￾tion 9). No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK Threshold on disposals The respondents took the view that the threshold should be expressed as a percent￾age of NOI or M&A factor (which is nearly the same). Concerning the level of the NOI/M&A factor, several levels are sug￾gested: 2%; 3%; 5%; 10%. The EBA considers the impact to be compared to the threshold should be calculated as the sum of the NOI of the divested entities or activities through￾out a fiscal year over the NOI of the di￾vesting institution over the same fiscal year. The calculation shall be made at the end of the preceding financial year using the amount of the NOI of the divested entity or activity and of the divesting institu￾tion. Finally, the threshold is set at 5%, based on data available. Changes brought to the cor￾responding RTS to reflect the EBA analysis and out￾come. Question 11: What are your views with regards to the level you consider would be appropriate for the threshold? Please explain and provide argu￾ments for your answer. Threshold on M&A Three respondents suggested a threshold to be calculated on consolidated level; one re￾spondent suggested a threshold to be calcu￾lated at an individual level; two respondents suggested a threshold calculated at every level where capital requirements apply; three respondents notified their lack of preference concerning the threshold appli￾cation level. One respondent suggested that Not applicable, given that a threshold for BI adjustments post M&As will not be implemented (see EBA analysis on ques￾tion 9). No changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK a higher threshold should be considered for large banking groups with a cross-border presence and also suggested that irrelevant operations at group level should not be con￾sidered in the BI group-level calculation. Threshold on disposal Two respondents suggested a disposal threshold to be calculated on a consolidated level. The level of application is prescribed in the CRR. No further changes made.

FINAL REPORT ON BUSINESS INDICATOR-RELATED MANDATES FOR OPERATIONAL RISK