Bank of Russia sets new requirements for measuring operational risk

Banks with a universal licence shall comply with the new rules beginning on 1 January 2023. Banks with a basic licence and non-bank credit institutions will be allowed to choose at their own discretion whether to apply the existing rules or switch to the new regulation for calculating their ratios, which they are obliged to report to the regulator.

At the moment, operational risk for calculating capital adequacy ratios is measured based on the average income earned over the last three years. The new approach will enable credit institutions to calculate the amount of capital needed to cover their operational risk depending on the actual level of direct losses that may be induced by operational risk events. Moreover, banks with a universal licence will be allowed to apply a simplified approach (without calculating the internal loss multiplier) and will therefore have no additional difficulties as compared to the effective procedure.

Credit institutions may measure operational risk using the internal loss multiplier before 1 January 2023 as well, which they should report to the Bank of Russia.

The new regulation comes into force on 14 February 2021. This is the second regulation of the Bank of Russia related to the Basel III-based approach to measuring operational risk. The first document has already become effective and establishes requirements for credit institutions’ operational risk management systems and for maintaining their operational risk event databases.