Various technical amendments and FAQs

The BCBS has issued a document addressing interpretative issues related to the Basel Framework, which includes proposals for technical amendments and FAQs.
The BCBS regularly monitors and reviews the implementation of its standards to promote a consistent global implementation of the Basel Framework. Some implementation issues require an amendment to the text of the standard itself to be resolved unambiguously.
Therefore, the Committee has proposed seven sets of technical amendments to the Basel Framework for feedback, with a short consultation period of 45 calendar days. The first three proposed amendments (Chapter OPE25) are related to the standardised approach to operational risk, while the fourth proposed amendment (Chapter DIS51) is related to the disclosure standards for credit valuation adjustment (CVA) risk. The fifth proposed amendment (Chapter SCO40 & DIS75) concerns the calculation of the score for the Trading Volume Indicator in the G-SIB framework, along with related disclosure requirements. The sixth proposed amendment (Chapter DIS75) pertains to the inclusion of insurance subsidiaries in the disclosure of the leverage ratio exposure measure in the G-SIB framework, and the seventh proposed amendment (Chapter RBC30 & DIS75) relates to the countercyclical capital buffer and related disclosure requirements.
Furthermore, the Committee has added five frequently asked questions (FAQs) to the Basel Framework in order to clarify the intended interpretation of the standards and promote their consistent global implementation. These FAQs are considered final and are not subject to public consultation since they do not alter the standards themselves. We would like to present these new questions and answers here in full, quote:
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> OPE10.3 (2023 version)
Should income and expenses from insurance activities where the bank acts as an intermediary (rather than the insurance provider) be excluded from the Business Indicator?
No. When the bank acts as an insurance intermediary and, therefore, is not the insurance provider (ie the risk taker), the related income and expenses are not excluded from the Business Indicator. On the other hand, income and expenses from the bank’s insurance or reinsurance business (ie relating to activities where a bank acts as the insurance provider) are excluded.
> OPE25.26 (2023 version)
How should the costs relating to a bank asset that is damaged or destroyed be defined?
In a case where a bank asset is damaged or destroyed and without prejudice of additional indirect losses, the losses related to the asset value and the costs of repair or replacement depend on how the bank proceeds in addressing that damage or destruction:
a) In cases where an asset of the bank is damaged or destroyed and the bank does not replace or repair it, the operational loss amount corresponds to the reduction in the book value of the asset plus any residual clean-up or disposal costs.
b) In cases where an asset of the bank is damaged or destroyed and the bank decides to replace it or repair it fully, then the operational loss amount is the cost of replacing or repairing the asset plus any residual clean-up or disposal costs.
c) In cases where an asset of the bank is damaged and the bank decides to repair it partially (ie the asset has less book value after repair than prior to the operational loss event), then the operational loss amount is the cost of repairing the asset plus the loss of book value of the asset after the repair relative to its pre-operational loss event book value plus any residual clean-up or disposal costs.
> OPE25.26 (2023 version)
What is the threshold of materiality for timing losses and pending losses?
Like other operational losses, timing losses and pending losses must be included in the operational loss event dataset if they are associated with an operational loss event that exceeds €20,000 (€100,000 upon national discretion) for banks in buckets 2 and 3.
> LCR40.69 (2019 version)
How does the LCR in the Basel Framework treat autocallable notes or those funding instruments that mature as soon as a pre-defined market-based trigger is reached or if a trigger is breached at a pre-defined date?
Autocallable notes or those funding instruments with market-based maturity triggers issued by the bank should be treated as other contingent funding obligations according to LCR40.69 in connection with LCR40.67. Accordingly, competent authorities and banks should consider which trigger events may occur under the stress assumptions set out in LCR20.2 on the basis of prudent and appropriate analysis.
> NSF30.9 (2019 version) and NSF30.24 (2019 version)
Does the deduction of variation margin from replacement cost in connection with a derivative or bilateral netting contract include the portion of variation margin that is in excess of the replacement cost amount of that derivative or bilateral netting contract? Or do national supervisors only allow a variation margin deduction up to the amount of the derivative asset or liability?
While national discretion exists on this matter, the amount of variation margin in connection with a derivative or bilateral netting contract that is in excess of the replacement cost of that derivative or bilateral netting contract must be adequately captured. This can be done by considering the full amount of variation margin in the calculation of the bank’s net derivative asset or liability, or by excluding any amount of variation margin that is posted or received in excess of the replacement cost of the corresponding derivative or bilateral netting contract and treating them according to the corresponding balance-sheet treatment (ie, typically a loan), the period of encumbrance and, where applicable, the type of counterparty. The Committee intends to monitor the impact of this national discretion.
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The Basel Committee welcomes feedback on the proposed technical amendments to ensure the Basel Framework’s effective implementation. Interested parties are invited to provide comments, which can be submitted by Monday, 15 May 2023. It should be noted that all comments received will be made available for public viewing on the BIS website, unless a respondent specifically requests that their comment be treated as confidential.