On 20 February 2024, the European Banking Authority (EBA) issued a consultation paper on the business indicator component (BIC).

The Capital Requirements Regulation 3 includes amendments to the operational risk area, where a revised framework is introduced and all previously existing approaches for the calculation of regulatory capital are replaced by the BIC. The BIC is based on a business indicator, which measures an institution’s volume of business. The business indicator is a financial statement-based proxy for operational risk. Only the items representing recurrent banking business operations in an institution’s profit and loss statement, or balance sheet statement should be included within this indicator.

In the consultation paper now published the EBA sets out draft regulatory technical standards (RTS) providing a list of typical items developed for each component of the business indicator line. The EBA has also produced draft RTS on business indicator adjustments requiring institutions to use actual three-year historical data or a limited number of alternative methodologies following an operation. The draft RTS also specify the conditions under which permission to exclude business indicator items related to disposed entities or activities may be granted. The draft implementing technical standards (ITS) that the EBA has drafted map, where possible, typical items of the business indicator to their corresponding reporting cells in FINREP.

The EBA will carry out a quantitative analysis based on data requested as part of the Basel III monitoring quantitative impact study (QIS) to assess the impact of the proposed amendments, as well as to inform the calibration of certain aspects of the new framework. The feedback received and the QIS results will be taken into account in the finalisation of the draft technical standards.

The deadline for comments on the consultation paper is 21 May 2024. A public hearing will take place in the form of a webinar on 20 March 2024.

Following the feedback received from the consultation, the EBA will revise the draft RTS and ITS, where appropriate, and send them in their final form to the European Commission for adoption.