SMA implementation tracker

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 previously 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 capital benchmarking survey.

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. If you have any updates, please send them to [email protected].

We will also have a standing item at the Banking Definitions Working Group looking at different national regulator requirements and guidance for the Internal Loss Multiplier component for Basel III SMA, if the regulator is not setting the loss multiplier = 1.

The BCBS also publishes a progress report on the implementation of the Basel regulatory framework. The October 2021 report has detail on implementation in 27 jurisdictions and the European Union.

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)
South Africa (SARB)
United Kingdom (PRA)

Summary of SMA implementation by jurisdiction

Jurisdiction	Implementation timeline for operational risk capital	Loss History included	Loss data for smaller institutions
Australia (APRA)	1 January 2023	No	Not applicable
Canada (OSFI)	1 February 2023	Yes	Only if approved for Standardised Approach
Europe (EBA)	1 January 2025	Yes	Yes
South Africa (SARB)	1 January 2024	Unconfirmed	Unconfirmed
United Kingdom (PRA)	1 January 2025	Unconfirmed	Unconfirmed

Summary of differences in implementation and capital impact

Australia (APRA)

Status: Confirmed, 12 June 2019
Loss history included: No
Loss data for smaller institutions: No
Higher threshold: N/A
Implementation timeline: 1 January 2023

Find out more:

APRA finalises new bank capital framework designed to strengthen financial system resilience

APRA announces deferral of capital reform implementation

No place for historical losses in APRA's plans for op risk capital

Canada (OSFI)

Status: Confirmed, 18 July 2019
Loss history included: Yes
Loss data for smaller institutions: Smaller firms with Adjusted Gross Income below CAD 1.5 billion can use the Simplified Standardised Approach (no loss data component) or the Standardised Approach with OSFI approval.
Higher threshold: Losses over CAD 30,000 should be included in loss history
Implementation timeline: Fiscal Q2 2023 - February 1, 2023 for institutions with an October 31st year end and April 1, 2023 for institutions with a December 31st year end.
Comment: Basel II standardised transition year in 2020

Find out more: OSFI opts for standardised approach transition year ahead of SMA

https://www.osfi-bsif.gc.ca/Eng/fi-if/rg-ro/gdn-ort/gl-ld/Pages/CAR22_gias.aspx

Europe (EBA)

Status: Confirmed 2 July 2019. Implementation pushed back from January 2023 to January 2025 to allow firms to focus on managing risks stemming from the Covid pandemic.
Loss history included: Yes
Loss data for smaller institutions: Yes
Higher threshold: Supervisors' discretion
Implementation timeline: 1 January 2025
Comment: Will require banks to systematically identify, disclose and manage Environmental, Social and Governance (ESG) risks, including climate stress testing.

Find out more: European Commission press release, timeline information

European Commission publishes public consultation on Basel III reforms, EBA formally provides its Basel III advice and Loss data included in EBA's recommended implementation of SMA

South Africa

Status: Confirmed 2021
Loss history included: Not specified
Loss data for smaller institutions: Not specified
Higher threshold: Not specified
Implementation timeline: not before 1 January 2024
Comment: Consultation paper on implementation to be published Q4 2022

Find out more: South African Reserve Bank Guidance Note (July 2021)

United Kingdom

Status: Confirmed 2021
Loss history included: Not specified
Loss data for smaller institutions: Not specified
Higher threshold: Not specified
Implementation timeline: 1 January 2025
Comment:

Find out more: Bank of England news release

United States

Status: Not specified
Loss history included: Not specified
Loss data for smaller institutions: Not specified
Higher threshold: Not specified
Implementation timeline: 1 January 2025
Comment:

Find out more: US Banks anticipate delay to Basel III implementation