What changed between the plenary report and the adopted text

Removed:Net loss = gross loss – recovery

Removed:where:

Removed:gross loss = a loss linked to an operational risk event before recoveries of any type;

Removed:recovery = one or multiple independent occurrences, related to the original operational risk event, separated in time, in which funds or inflows of economic benefits are received from a third party.

Removed:Institutions shall maintain on an ongoing basis an updated calculation of the net loss for each specific operational risk event. To that end, institutions shall update the net loss calculation based on the observed or estimated variations of the gross loss and the recovery for each of the last ten financial years. Where losses, linked to the same operational risk event, are observed during multiple financial years within that ten-year time window, the institution shall calculate and maintain updated:

Removed:(a) the net loss, gross loss and recovery for each of the financial years of the ten-year time window where that net loss, gross loss and recovery were recorded;

Removed:(b) the aggregated net loss, aggregated gross loss and aggregated recovery of all the relevant financial years of the ten-year time window.

Removed:2. For the purposes of paragraph 1, the following items shall be included in the gross loss computation:

Removed:(a) direct charges, including impairments, settlements, amounts paid to make good the damage, penalties, interest in arrears and legal fees to the institution’s profit and loss accounts and write-downs due to the operational risk event, including:

Removed:(i) where the operational risk event relates to market risk, the costs to unwind market positions in the recorded loss amount of the operational risk items;

Removed:(ii) where payments relate to failures or inadequate processes of the institution, penalties, interest charges, late-payment charges, and legal fees, and, with the exclusion of the tax amount originally due, tax;

Removed:(b) costs incurred as a consequence of the operational risk event, including external expenses with a direct link to the operational risk event and costs of repair or replacement, incurred to restore the position that was prevailing before the operational risk event occurred;

Removed:(c) provisions or reserves accounted for in the profit and loss accounts against the potential operational loss impact, including those from misconduct events;

Removed:(d) losses stemming from operational risk events with a definitive financial impact which are temporarily booked in transitory or suspense accounts and are not yet reflected in the profit and loss accounts (‘pending losses’);

Removed:(e) negative economic impacts booked in a financial year and which are due to operational risk events impacting the cash flows or financial statements of previous financial years (‘timing losses’).

Removed:For the purposes of point (d), material pending losses shall be included in the loss data set within a time period commensurate with the size and age of the pending item.

Removed:For the purposes of point (e), the institution shall include in the loss data set material timing losses where those losses are due to operational risk events that span more than one financial year and give rise to legal risk. Institutions shall include in the recorded loss amount of the operational risk item of a financial year losses that are due to the correction of booking errors that occurred in a previous financial year, even where those losses do not directly affect third parties. Where there are material timing losses and the operational risk event affects directly third parties, including customers, providers and employees of the institution, the institution shall also include the official restatement of previously issued financial reports.

Removed:3. For the purposes of paragraph 1, the following items shall be excluded from the gross loss computation:

Removed:(a) costs of general maintenance of contracts on property, plant or equipment;

Removed:(b) internal or external expenditures to enhance the business after the operational risk losses, including upgrades, improvements, risk assessment initiatives and enhancements;

Removed:(c) insurance premiums.

Removed:4. For the purposes of paragraph 1, recoveries shall be used to reduce gross losses only where the institution has received payment. Receivables shall not be considered as recoveries.

Removed:Upon request from the competent authority, the institution shall provide all the documentation needed to perform verification of payments received and factored in the calculation of the net loss of an operational risk event.

Removed:1. To calculate an annual operational risk loss as required by Article 316(1), institutions shall take into account from the loss data set operational risk events with a net loss, calculated in accordance with Article 318, that are equal to or above EUR 20 000.

Removed:2. Without prejudice to paragraph 1, and for the purposes of Article 446, institutions shall also calculate the annual operational risk loss referred to in Article 316(1), taking into account from the loss data set operational risk events with a net loss, calculated in accordance with Article 318, that are equal to or above EUR 100 000.

Removed:3. In case of an operational risk event that leads to losses during more than one financial year, as referred to in Article 318(1), second subparagraph, the net loss to be taken into account for the thresholds referred to in paragraph 1 and 2 shall be the aggregated net loss.

Removed:1. Competent authorities may permit an institution to exclude from the calculation of the institution’s annual operational risk losses exceptional operational risk events that are no longer relevant to the institution’s risk profile, where all of the following conditions are fulfilled:

Removed:(a) the institution can demonstrate to the satisfaction of the competent authority that the cause of the operational risk event at the origin of those operational risk losses will not occur again;

Removed:(b) the operational risk loss is either of the following:

Removed:(i) equal to or above 10 % of the institution’s average annual operational risk loss, calculated based on the threshold referred to in Article 319(1), where the operational risk loss event refers to activities that are still part of the business indicator;

Removed:(ii) above 0 % of the institution’s average annual operational risk loss, calculated based on the threshold referred to in Article 319(1), where the operational risk loss event refers to activities divested from the business indicator in accordance with Article 315(2);

Removed:(c) the operational risk loss was in the loss database for a minimum period of 1 year, unless the operational risk loss is related to activities divested from the business indicator in accordance with Article 315(2).

Removed:For the purposes of point (c), the minimum period of 1 year shall start from the date on which the operational risk event, included in the loss data set, first became greater than the materiality threshold referred to in Article 319(1).

Removed:2. An institution requesting the permission referred to in paragraph 1 shall provide the competent authority with documented justifications for the exclusion of an exceptional loss, including:

Removed:(a) a description of the operational risk event that is submitted for exclusion;

Removed:(b) proof that the loss from the operational risk event is above the materiality threshold for loss exclusion referred to in paragraph 1, point (b), including the date on which that operational risk event became greater than the materiality threshold;

Removed:(c) the date on which the operational risk event concerned would be excluded, considering the minimum retention period set out paragraph 1, point (c);

Removed:(d) the reason why the operational risk event is no longer deemed relevant to the institution’s risk profile;

Removed:(e) the demonstration that there are no similar or residual legal exposures and that the operational risk event to be excluded has no relevance to other activities or products;

Removed:(f) reports of the institution’s independent review or validation, confirming that the operational risk event is no longer relevant and that there are no similar or residual legal exposures;

Removed:(g) proof that competent bodies of the institution, through the institution’s approval processes, have approved the request for exclusion of the operational risk event and the date of such approval;

Removed:(h) the impact of the exclusion of the operational risk event on the annual operational risk loss.

Removed:3. EBA shall develop draft regulatory technical standards to specify the conditions that the competent authority has to assess pursuant to paragraph 1, including how the average annual operational risk loss should be computed and the specifications on the information to be collected pursuant to paragraph 2 or any further information deemed necessary to perform the assessment.

Removed:EBA shall submit those draft regulatory technical standards to the Commission by [OP please insert the date = 18 months after entry into force of this Regulation].

Removed:Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Removed:1. Losses stemming from merged or acquired entities or activities shall be included in the loss data set as soon as the business indicator items related to those entities or activities are included in the institution’s business indicator calculation in accordance with Article 315(1). To that end, institutions shall include losses observed during a ten-year period prior to the acquisition or merger.

Removed:2. EBA shall develop draft regulatory technical standards to specify how institutions shall determine the adjustments to their loss data set following the inclusion of losses from merged or acquired entities or activities as referred to in paragraph 1.

Removed:EBA shall submit those draft regulatory technical standards to the Commission by [OP please insert the date = 18 months after entry into force of this Regulation].

Removed:Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.

Removed:1. Institutions shall have in place the organisation and processes to ensure the comprehensiveness, accuracy and quality of the loss data and to review it independently.

Removed:2. Competent authorities shall ▌review the quality of the loss data of an institution that calculates annual operational risk losses in accordance with Article 316(1).▌

Removed:1. Institutions shall have in place:

Removed:(a) a well-documented assessment and management system for operational risk which is closely integrated into the day-to-day risk management processes, forms an integral part of the process of monitoring and controlling the institution’s operational risk profile, and for which clear responsibilities have been assigned. The assessment and management system for operational risk shall identify the institution’s exposures to operational risk and track relevant operational risk data, including material loss data;

Removed:(b) an operational risk management function that is independent from the institution’s business and operational units;

Removed:(c) a system of reporting to senior management that provides operational risk reports to relevant functions within the institution;

Removed:(d) a system of regular monitoring and reporting of operational risk exposures and loss experience, and procedures for taking appropriate corrective actions;

Removed:(e) routines for ensuring compliance, and policies for the treatment of non-compliance;

Removed:(f) regular reviews of the institution’s operational risk assessment and management processes and systems, performed by internal or external auditors that possess the knowledge necessary to carry out such reviews;

Removed:(g) internal validation processes that operate in a sound and effective manner;

Removed:(h) transparent and accessible data flows and processes associated with the operational risk assessment system.