General aspects and procedures for the management and methods for the measurement of operational risk
It is Group policy to identify, measure and monitor operational risks within an overall process of operational risk management with the following objectives:
to identify the causes of prejudicial events at the origin of operational losses and consequently to increase corporate profitability and improve operational efficiency, by identifying critical areas and monitoring and optimising the system of controls;
to optimise policies to mitigate and transfer risk, such as for example, the use of insurance, on the basis of the magnitude and actual exposure to risk;
to optimise the allocation and absorption of capital for operational risk and provision policies in a perspective of creating value for shareholders;
to support decision-making processes concerning the start up of new business, activities, products and systems;
to develop an operational risk culture at business unit level increasing awareness throughout units;
to respond to the regulatory requirements of the New Basel Accord on Capital for banks and banking groups.
In the light of the regulatory context as set out by the Bank of Italy in the publication of Circular No. 263 of 27/12/2006, the UBI Banca Group will adopt the standard TSA (Traditional Standardised Approach) in combined use with the basic BIA (Basic Indicator Approach) method for the calculation of capital requirements on operational risks in 2008, to converge in 2009 on the use of an internal model of the advanced type (Advanced Measurement Approach-AMA) in combined use with the TSA and BIA method (partial AMA, where "partial" is intended as the adoption of the AMA method on some lines of business or Group entities only).
Operational risk is defined as the risk of loss resulting from inadequate or failed procedures, human resources and internal systems or from exogenous events. This type of risk includes loss resulting from fraud, human error, business disruption, system failure, non performance of contracts and natural disasters.
This definition includes the legal risk of losses resulting from violations of laws and regulations, and from contractual or non contractual responsibilities or from other litigation, but it does not include reputational risk.
Operational risk is characterised by cause and effect relations for which one or more trigger events generate a prejudicial event or effect which is directly linked to an economic loss. An operational loss is therefore defined as a set of negative economic impacts resulting from events of an operational nature, recognised in the accounts of a business and sufficient to impact on the income statement.