This chapter defines operational risk and the components of the Business Indicator used to calculate capital requirements for operational risk. In addition, this chapter describes the application within a banking group of the standardised approach for measuring operational risk capital requirements.

Version effective as of 01 Jan 2023

Reflects revised standardised approach introduced in the December 2017 Basel III publication (including the revised implementation date announced on 27 March 20200) and removal of internal model approaches.

Definition of operational risk

10.1 Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk [Legal risk includes, but is not limited to, exposure to fines, penalties, or punitive damages resulting from supervisory actions, as well as private settlements.], but excludes strategic and reputational risk.

Definition of Business Indicator components

10.2 Table 1 defines the components of the Business Indicator (BI).