SBP ex­tends dead­line for banks till March 2017

The Pak Banker - - COMPANIES/BOSS - Muham­mad Yasir

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.

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