SBP extends deadline for banks till March 2017
State Bank of Pakistan (SBP) has extended the deadline for banks to provide them operational loss data collection mechanism and related reporting till March 2017 subsequently regulatory development were witnessed on international level.
In a circular issued to banks, the central banks said that it received feedback received from stakeholders for development on this front including proposal of Basel Committee on Banking Supervision (BCBS) which suggested revising the standardized approaches. Banks are prone to a wide range of risks including frauds, forgeries, legal cases, incidents pertaining to IT, pandemic and external issues. Therefore, operational risk has emerged as an important element of enterprise-wide risk management system and has been made part of Pillar-1 capital requirement under the Basel framework which requires banks/ DFIs to hold capital explicitly for operational risk.
To further strengthen the operational risk management and for effective transition to advance approaches requiring historical time series of losses on consistent basis, State Bank has outlined Principles for Sound Management of Operational Risk and minimum standards for operational risk/loss data collection and implementation by the banks. The bank may make enhancements in standards in the light of their own experiences and requirements while adopt- ing these instructions.
The central bank issued the guidance on Standardized Approaches of operational risk prescribed under SBP Basel instructions and it intended to ensure that banks collect their loss data in a standardized way. Once the banks set up their operational risk framework and start collecting operational loss data, SBP would look into the possibility of forming an operational risk data consortium.
Hence, all banks/ DFIs are expected to set up operational risk framework and start operational loss data collection in line with the attached instructions by December 2015 and during this time period SBP inspection teams would review the progress made by the banks in this regard.
The objective of the central bank is mainly to start collection of operational loss data within banks/ DFIs on the Basel defined business lines/ event types matrix. The collection of industry wide loss data (from supervisory perspective the losses reported by banks) may be used for comparison and judging the operational riskiness of banks.
And, the implementation of effective operational risk management framework by adopting international best practices and inculcating risk awareness culture within banks.
These guidelines would provide basis for collecting internal and external data and business environment and internal control systems (BE&ICS). All banks would consistently track operational risk losses and relevant data for effective management of operational risk and may form basis for the implementation of advanced approaches in the future.