On 4 March 2016 the Basel Committee on Banking Supervision (BCBS) proposed a new Standardised Measurement Approach (SMA) for Pillar 1 operational risk capital. It proposed that the SMA replaces all existing basic, standardised and advanced approaches for calculating operational risk capital requirements. This tracker summarises plans for SMA implementation by jurisdiction.
The finalised guidance – published in December 2017 – offered national discretion on:
The use of loss data
The use of loss data for small banks
A higher threshold for which losses are included
The BCBS’ stated aim was achieve an appropriate balance between simplicity, comparability, and risk sensitivity for operational risk capital calculations. It also expected the revisions to have a relatively neutral impact on capital.
We've previously done a number of detailed studies to assess the effect of the SMA on the industry, including a study on the capital impact of the SMA which is freely available for you to read. We've also carried out a number of research projects for our members – including the capital benchmarking survey.
ORX has also published a lessons learnt paper which has analysed the direction of travel of regulatory implementation around loss data quality, focusing on Canada where loss history has been included in the capital calculation.
As different regulatory bodies share their plans for Basel III, we'll update this page with information about their decisions and highlighting key areas of difference. If you have any updates please send them to john.bosnell@orx.org
We will also have a standing item at the Banking Definitions Working Group looking at different national regulator requirements and guidance for the Internal Loss Multiplier component for Basel III SMA, if the regulator is not setting the loss multiplier = 1.
The BCBS also publishes a progress report on the implementation of the Basel regulatory framework. The October 2024 press release has the latest detail on implementation in 27 jurisdictions and the European Union.
Summary of SMA implementation by jurisdiction
Jurisdiction |
Implementation timeline for operational risk capital |
Loss History included |
Loss data for smaller institutions |
|
Australia (APRA) |
1 January 2023 |
No |
No |
| Brazil (BCB) |
1 January 2025 |
Yes |
No, or under guidance of the BCB for Segment 3 banks (Segment 4 & 5 banks set ILM = 1) |
|
Canada (OSFI) |
1 February 2023 |
Yes |
Only if approved for Standardised Approach |
|
Europe (EBA) |
1 January 2025 |
No |
No |
|
India (RBI) |
Not confirmed |
Yes |
No for firms with BI of less than INR 80 billion |
|
Japan (FSA) |
31 March 2024 (Internationally active) 31 March 2025 |
Yes |
No |
|
Singapore (MAS) |
1 July 2024 |
Yes |
Optional for firms with a BI of less than SGD 1.5 billion |
|
South Africa (SARB) |
1 July 2025 |
Yes |
No |
|
Switzerland (FINMA) |
1 January 2025 |
Yes |
Yes, no exception in guidance |
|
United Kingdom (PRA) |
1 January 2027 |
No |
No |
|
United States (Fed) |
Not confirmed |
