Risk Management

Global Regulators Push Banks To Boost Cyber Risk Coverage

Banks may face tougher guidelines when it comes to how much they are required to spend to cover the risks that cyberattacks, fraud and fines pose to their operations.

Last last week, Reuters reported that global regulators are proposing these rules to inhibit financial institutions from cutting down the amount of capital devoted to the coverage needed in these circumstances.

“The proposals are an important step toward completing the post-crisis reforms during the current year,” Stefan Ingves, Basel Committee chairman and governor of Sweden’s central bank, explained in a statement on Friday (March 4).

The Basel Committee on Banking Supervision, which provides a global forum on banking supervisory manners, said the proposed revisions to the operational risk capital framework is part of its larger objective of “balancing simplicity, comparability and risk sensitivity.”

The new Standardized Measurement Approach (SMA) for operational risk will seek to combine a financial statement-based measure of operational risk with a bank’s actual historic operational losses to create a more risk-sensitive framework.

“The option to use an internal, model-based approach for measuring operational risk — the ‘Advanced Measurement Approaches’ (AMA) — has been removed from the operational risk framework. The committee believes that modeling of operational risk for regulatory capital purposes is unduly complex and that the AMA has resulted in excessive variability in risk-weighted assets and insufficient levels of capital for some banks,” the statement said.

“For most banks, the committee expects that these proposals will have a relatively neutral impact on capital. While the objective of these proposals is not to significantly increase overall capital requirements, it is inevitable that minimum capital requirements will increase for some banks,” Ingves continued.

Basel regulations are international, voluntary guidelines for financial regulators to assure banking stability through stress tests and other measures.

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