SMA implementation tracker
- 15 October 2019
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.
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 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 exclusively for our membership which are available on our members-only website – these include the QIS capital benchmark and our capital benchmarking surveys.
As different regulatory bodies share their plans for the SMA, we'll update this page with information about their decisions and highlighting key areas of difference.
Where has the new SMA been confirmed?
So far, the plans for the new SMA have been confirmed in:
- Australia (APRA)
- Europe (EBA)
- Canada (OSFI)
Summary of differences in implementation and capital impact
Status: Confirmed, 12 June 2019
Loss history included: No
Loss data for smaller institutions: N/A
Higher threshold: N/A
Capital impact compared to current approaches: Neutral
Implementation timeline: 2021
Comment: AUD version of the calculation provided
Status: Confirmed, 18 July 2019
Loss history included: Unconfirmed
Loss data for smaller institutions: Unconfirmed
Higher threshold: Unconfirmed
Capital impact compared to current approaches: Unconfirmed
Implementation timeline: 2021
Comment: Basel II standardised transition year in 2020
Status: Confirmed 2 July 2019, formally announced 5 August 2019, public consultation published 11 August
Loss history included: Yes
Loss data for smaller institutions: Yes
Higher threshold: Supervisors' discretion
Capital impact compared to current approaches: +40% on average
Implementation timeline: Later than 2022*
Comment: Wide ranging recommendations, including qualitative guidance, and more consistency in Pillar 2
*There is nothing explicit stating later than 2021, but in the call for advice it states that: “Buckets 2 and 3 banks could benefit of a more gradual introduction of the BCBS SA baseline and make use of a phase-in solution aligned to that envisaged by the output floor, in order to smooth potential cliff effects compared to current operational risk capital levels and to improve quality and completeness of the loss data to be used within the BCBS SA.”, meaning that complete transition to SMA capital levels would perhaps happen after 2021.