Financial Markets Act, 2012 (Act No. 19 of 2012)

Regulations

Financial Markets Act Regulations

Chapter VI : Central Counterparties

25. Capital calculation requirements for operational risk

25.2 Advanced measurement approach

25.2.4 Internal data

Purchase

(1)	A licensed central counterparty must duly capture internal loss data—

(a)	in order for the central counterparty, amongst other things, to validate or compare its risk estimates with the central counterparty’s actual experience of loss;

(b)	which must clearly be linked to the central counterparty’s business activities, technological processes and risk management procedures;

(2)	A licensed central counterparty’s internal processes relating to the collection of loss data must—

(a)	be adequate to map the central counterparty’s historical internal loss data into the relevant level 1 categories specified in Table 25(B), which relate to loss event types;

(b)	be duly documented, which documentation, among other things, must—

(i)	include objective criteria for the allocation of losses to the relevant business lines specified in Table 25(A), and the specified loss event types;

(ii)	specify the relevant criteria to be applied when assigning loss data arising from an event in a centralised function, such as an information technology department, or an activity that spans more than one business line, as well as from related events over time;

(c)	be sufficiently robust to—

(i)	ensure that the central counterparty's internal loss data is comprehensive in the sense that the central counterparty’s internal process captures all material activities and exposures from all appropriate sub-systems and geographic locations;

(ii)	capture adequate information in respect of—

(aa)	the gross loss amounts;

(bb)	the date of the loss event;

(cc)	any recovery of gross loss amounts;

(dd)	descriptive information relating to the drivers or causes of the loss event;

(d)

include an appropriate de minimis gross loss threshold amount for the collection of internal loss data; provided that in order to ensure broadly consistent data collection between central counterparties that adopted the advanced measurement approach for the calculation of their respective capital requirements relating to operational risk, the Authority may from time to time specify a minimum gross loss threshold amount;

(e)

treat operational risk losses that are related to credit risk and that have historically been included in the central counterparty’s credit risk databases, such as collateral management failures, as credit risk for the purposes of calculating the central counterparty’s relevant minimum required amount of capital and reserve funds, that is, such losses may not be subject to the operational risk capital requirement specified;

(f)	flag material operational risk-related credit risk losses separately within the central counterparty’s internal operational risk database;

(g)

treat operational risk losses that are related to market risk as operational risk for the purposes of calculating the central counterparty’s relevant minimum required amount of capital and reserve funds, that is, such losses must be subject to the relevant operational risk capital requirement specified.

(3)

A central counterparty must have in place duly documented procedures in order to assess the on-going relevance of historical data, which must specify the situations in which judgment, scaling or other adjustments to internal loss data may be used, including the extent to which such judgment may be used and the officials who are authorised to make such decisions.

(4)	When a central counterparty’s capital requirement in respect of operational risk is based on internal loss data, the capital requirement must be based on—

(a)	a minimum observation period of five years of data; or

(b)

when the central counterparty first adopts the advanced measurement approach, a minimum observation period of three years of data, subject to such conditions as may be specified in writing by the Authority, irrespective whether the internal loss data is used to calculate or validate the central counterparty’s measure of loss.