Basel Committee On Banking Supervision Proposes New Approach To Operational Risk

On March 4, 2016, the Basel Committee on Banking Supervision published proposals to revise the standards for operational risk for internationally active banks. The Basel Committee consulted in 2014 on a revised Standardized Approach to operational risk and simultaneously undertook a review of the Advanced Measurement Approach for operational risk. The Basel Committee is proposing to replace the AMA from the Basel framework as well as the three existing Standardized Approaches with a Standardized Measurement Approach.

The new SMA is not based on any modelling and would set a standardized approach for measuring operational risk for regulatory capital purposes which would include risk sensitivity by using a bank's financial statement information and its internal loss experience. The Basel Committee introduced the AMA for operational risk in 2006 as part of the Basel II framework. The AMA allows regulatory capital to be estimated using a range of internal modelling