Operational Risk (CRR)

1.

For institutions applying accounting standards established by Directive 86/635/EEC UK law, based on the accounting categories for the profit and loss account of institutions under Article 27 of that Directive, the relevant indicator is the sum of the elements listed in Table 1 of this paragraph. Institutions shall include each element in the sum with its positive or negative sign.

Table 1

Institutions shall adjust these elements to reflect the following qualifications:

1. (a) institutions shall calculate the relevant indicator before the deduction of any provisions and operating expenses. Institutions shall include in operating expenses fees paid for outsourcing services rendered by third parties which are not a parent or subsidiary of the institution or a subsidiary of a parent which is also the parent of the institution. Institutions may use expenditure on the outsourcing of services rendered by third parties to reduce the relevant indicator where the expenditure is incurred from an undertaking subject to rules under, or equivalent to, the CRR;
2. (b) institutions shall not use the following elements in the calculation of the relevant indicator:
3. 1. (i) realised profits/losses from the sale of non-trading book items;
   2. (ii) income from extraordinary or irregular items;
   3. (iii) income derived from insurance.
4. (c) when revaluation of trading items is part of the profit and loss statement, institutions may include revaluation. When institutions apply Article 36(2) of Directive 86/635/EEC UK law, they shall include revaluation booked in the profit and loss account.

1A.

By way of derogation from the first subparagraph of paragraph (1), institutions may choose not to apply the accounting categories for the profit and loss account under Article 27 of Directive 86/635/EEC UK law to financial and operating leases for the purpose of calculating the relevant indicator, and may instead:

1. (a) include interest income from financial and operating leases and profits from leased assets in the category referred to in point 1 of Table 1;
2. (b) include interest expense from financial and operating leases, losses, depreciation and impairment of operating leased assets in the category referred to in point 2 of Table 1.

2.

When institutions apply accounting standards different from those established by Directive 86/635/EEC UK law, they shall calculate the relevant indicator on the basis of data that best reflect the definition set out in this Article.

3.

[Note: Provision left blank]

[Note: This rule corresponds to Article 316 of the CRR as it applied immediately before revocation by the Treasury.]