04 January 2010

CEBS publishes guidelines on operational risk mitigation techniques

The paper covers the general conditions that need to be fulfilled for the recognition of operational risk mitigation instruments, both insurance contracts and Other Risk Transferred Mechanisms. It also analyses the specific conditions for the use of insurance and ORTM.

The Committee of European Banking Supervisors (CEBS) today publishes its guidelines on operational risk mitigation techniques following a three-month public consultation period and a public hearing. These guidelines, which build on the provisions of the Capital Requirements Directive (CRD) and CEBS’s Guidelines on the Implementation, Validation and Assessment of AMA and IRB Approaches (Implementation Guidelines – GL10), provide supervisory expectations and clarification on the recognition of risk transfer instruments within the AMA.

The paper is structured in three main sections addressing first the general conditions that need to be fulfilled for the recognition of operational risk mitigation instruments, both insurance contracts and Other Risk Transferred Mechanisms (ORTM). The following two sections analyse the specific conditions for the use of insurance (eligibility of protection providers, characteristics of the products, haircuts for uncertainty of coverage) and for the use of ORTM.

Due to the relatively brief experience of both institutions and supervisors with ORTM, only a limited number of specific ORTM guidelines have been issued at this stage. However, CEBS will continue its dialogue with the industry on the development of ORTM and will closely monitor their use as instruments for operational risk mitigation, aiming to supplement and/or review the current guidelines when appropriate.

Deadline for comments is 30 June 2010.

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