Banks Act, 1990 (Act No. 94 of 1990)

Regulations

Regulations relating to Banks

Chapter II : Financial, Risk-based and other related Returns and Instructions, Directives and Interpretations relating to the completion thereof

33. Operational risk: six-monthly return

Directives and interpretations for completion of six-monthly return concerning operational risk (Form BA 400)

Subregulation (9) Advanced measurement approach

Subregulation (9)(e)
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(e)The capital requirement of a bank that adopted the advanced measurement approach for the measurement of the bank's exposure to operational risk—
(i)shall be equal to the sum of the bank's expected loss amounts and unexpected loss amounts, unless the bank can demonstrate to the satisfaction of the Registrar that the bank duly measures and accounts for expected losses;
(ii)shall be equal to the aggregate amount of the bank's risk measures for the different operational risk estimates, provided that, subject to the prior written approval of and such conditions as may be specified in writing by the Registrar, the bank may use internally determined correlations in respect of operational risk losses across individual operational risk estimates, provided that—
(A)the bank's systems—
(i)shall duly take into account uncertainty in respect of correlation estimates;
(ii)shall be subject to sufficiently robust stress testing.
(B)the bank shall validate its correlation assumptions by making use of appropriate quantitative and qualitative techniques.
(iii)shall be the amount after the bank has taken into account the effect of eligible risk mitigation, that is, in order to take into account the effect of risk mitigation in respect of operational risk the bank shall comply with the relevant requirements relating to risk mitigation specified in paragraph (f) below.