Guidance Note: Prudential Reporting of Operational Risk (December 2018)

Summary

This is JFSC guidance explaining how Jersey deposit-taking banks (JIBs) must complete the operational risk module of the Prudential Reporting template, using either the Basic Indicator Approach (BIA) or the Standardised Approach (SAO) as agreed with the JFSC. It sets out how to calculate the operational risk capital charge from three years of gross income data and how to treat partial years of operation.

• Approach selection: Each JIB uses only the reporting sheet (4.1 BIA or 4.2 SAO) corresponding to the approach agreed with the JFSC, and must record the method used on the Submission Header sheet under Operational Risk Method.
• BIA calculation: Capital charge is 15% (Alpha) of average gross income over the past three years, counting only years where income was positive.
• SAO calculation: Income must be allocated across eight business lines (Corporate Finance, Trading and Sales, Retail Banking, Commercial Banking, Payment and Settlement, Agency Services, Asset Management, Retail Brokerage), each multiplied by a Beta factor of 12 to 18 percent, summed and averaged over positive years.
• Partial year treatment: A partial year of operation of six months or more is treated as a full year and its gross income annualised; a partial year of less than six months is disregarded and reported as zero.
• RWA equivalent: The risk-weighted assets equivalent is derived by multiplying the average capital charge by 12.5, and combined with credit and other risk RWAs for total RWA.

The document also provides worked examples of full/partial year treatment and completed sample BIA and SAO forms to illustrate correct completion, but it does not itself introduce new filing deadlines beyond the existing Prudential Return reporting cycle.

Key obligations

• JIBs must complete only the reporting sheet (BIA or SAO) corresponding to the approach agreed with the JFSC and record the chosen method on the Submission Header sheet.
• JIBs must calculate the operational risk capital charge using gross income data from the preceding three years, per the formula for their agreed approach (BIA or SAO).
• Under the SAO, all income must be allocated to one of the eight specified business lines, referring doubtful allocations to the relevant Supervision Manager at the JFSC.
• JIBs must treat any partial year of operation of six months or more as a full year and annualise its gross income; partial years of less than six months must be disregarded and reported as zero.

Applies to

Jersey deposit-taking banks (JIBs), registered persons subject to JFSC prudential reporting