7.1.6 Powers of Regulatory Authority Despite anything in these rules, if the Regulatory Authority identifies points of exposure or vulnerability to operational risk that are common to 2 or more banking business firms, it may impose specific capital requirements or limits on each affected firm. Examples  outsourcing of important operations by many banking business firms to a single provider  severe disruption to providers of payment and settlement services. 7.1.7 Basic indicator approach (1) A banking business firm must use the basic indicator approach to operational risk. is the amount Operational risk capital requirement of capital that the firm must have to cover its operational risk. (2) The operational risk capital requirement is calculated in firm’s accordance with the following formula: where: is the average annual gross income (as defined in subrule (3) GI firm’s or (4)) for those years (out of the previous 3 years) for which the annual gross income is more than zero. firm’s is 15% or a higher percentage set by the Regulatory Authority. α is the number of years out of the previous 3 years for which the n gross income is more than zero. firm’s Guidance Because of the definitions of and figures for any year in which the annual gross GI n, income of a firm is negative or zero must be excluded from both the numerator and denominator when calculating the average. (3) For a deposit-taker or investment dealer, for a year, gross income, means net interest income plus net non-interest income for the year. It must be gross of: (a) any provisions (including provisions for unpaid interest); (b) operating expenses; and (c) losses from the sale of securities in the to and ‘Held Maturity’ for categories in the banking book. ‘Available Sale’
7.1.6 Powers of Regulatory Authority Despite anything in these rules, if the Regulatory Authority identifies points of exposure or vulnerability to operational risk that are common to 2 or more banking business firms, it may impose specific capital requirements or limits on each affected firm. Examples  outsourcing of important operations by many banking business firms to a single provider  severe disruption to providers of payment and settlement services. 7.1.7 Basic indicator approach (1) A banking business firm must use the basic indicator approach to operational risk. Operational risk capital requirement is the amount of capital that the firm must have to cover its operational risk. (2) The firm’s operational risk capital requirement is calculated in accordance with the following formula: where: GI is the firm’s average annual gross income (as defined in subrule (3) or (4)) for those years (out of the previous 3 years) for which the firm’s annual gross income is more than zero. α is 15% or a higher percentage set by the Regulatory Authority. n is the number of years out of the previous 3 years for which the firm’s gross income is more than zero. Guidance Because of the definitions of GI and n, figures for any year in which the annual gross income of a firm is negative or zero must be excluded from both the numerator and denominator when calculating the average. (3) For a deposit-taker or investment dealer, gross income, for a year, means net interest income plus net non-interest income for the year. It must be gross of: (a) any provisions (including provisions for unpaid interest); (b) operating expenses; and (c) losses from the sale of securities in the ‘Held to Maturity’ and ‘Available for Sale’ categories in the banking book.
QFCRA_9582_VER5.docx