In reply to the European Banking Authority (EBA) consultation on a new framework for the operational risk loss, data collection, including establishing a new operational risk event taxonomy, we've brought together our global membership to provide a consolidated industry response to the proposals.
As the world's largest operational risk management association for financial firms, we've focused our response on the operational risk taxonomy part of the EBA paper. We've surveyed our banking members to gather their views on the EBA proposals, combining their feedback with our 20+ years of experience in developing and implementing operational risk reporting standards. Our response letter was sent to the EBA on 6 September. Read on for highlights from the letter, or if you're an ORX member you can log in to read the full document.
About the consultation
On 6 June, the EBA launched a consultation aimed at enhancing the international operational risk data standards. As a leader in the field of operational financial risk management, we have collaborated closely with our member firms and the EBA to facilitate an update of the Basel II taxonomy, a framework that has been the cornerstone of the industry for over twenty years.
Headlines from our responses to the EBA
Overall, we and our members welcome the initiative of the EBA in championing the need
to update the Basel II event taxonomy, which is now over 20 years old. However:
1. Firms want a coordinated global approach to event taxonomies
Banks which operate over multiple jurisdictions favour a single taxonomy adopted across regulators (as with the Basel Event Types).
2. There should be a clarity of purpose for the taxonomy
Having a well-defined purpose for the data collected according to the taxonomy would allow a better understanding of whether the level of detail within the proposed taxonomy is appropriate.
3. The taxonomy should be fit for the future, but time is needed to get this right
In our experience, changing taxonomies is much more a practical than intellectual exercise. It is a significant effort for firms and the wider industry, and as a consequence it doesn’t happen often (either within an organisation or at industry level). It is important that there is sufficient time allowed to get this right, including time for testing proposals.
4. Attributes provide flexibility, but must be carefully considered
In our experience, attributes can provide the flexibility required to ensure a taxonomy is robust and can be adapted to future trends and themes.
“The successful development of a taxonomy requires time. A particularly strong message we received from our membership is that more time is needed to both evaluate the proposed changes, and to achieve successful implementation.”
Luke Carrivick, Executive Director ORX
What's next?
We remain committed to collaborating with the EBA and our members to refine and advance the taxonomy framework.
On 6 September 2024, ORX submitted our comprehensive letter to the EBA. We will keep our members informed with the latest updates from the EBA as they become available. Once the consultation period concludes, the EBA plans to make all contributions public.
ORX members can log in to read the full letter to the EBA below.
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