The rule in plain words
This shows what the Operational risk capital requirements (ORC) would be by multiplying the BIC and the ILM based on losses greater than £20,000
In Operational risk: part 2 - minimum required capital (OPR) (OF16.00.01.02): "Minimum required operational risk capital (ORC)" in column "ILM (losses greater than £20,000)" (row 0010, column 0020) must equal "Business Indicator Component (BIC)" in column "Amount" (row 0010, column 0010) in Operational risk: part 3 - business indicator component (OPR) (OF16.00.01.03) multiplied by "ILM (losses greater than £20,000)" in column "Amount" (row 0010, column 0010) in Operational risk: part 6 - internal loss multiplier (OPR) (OF16.00.01.06).
The headline gives only the template and the kind of check, because the rule is too long to say in a headline. The plain words above say all of it.
This is a warning. It does not stop the return on its own, but your supervisor may ask you to explain it. It runs only when your filing indicators mark OF16.00.01.02, OF16.00.01.03 and OF16.00.01.06 as reported.
The cells it reads
Operational risk: part 2 - minimum required capital (OPR) (OF16.00.01.02)
Row
- R0010Minimum required operational risk capital (ORC)
Column
- C0020ILM (losses greater than £20,000)
Operational risk: part 3 - business indicator component (OPR) (OF16.00.01.03)
Row
- R0010Business Indicator Component (BIC)
Column
- C0010Amount
Operational risk: part 6 - internal loss multiplier (OPR) (OF16.00.01.06)
Row
- R0010ILM (losses greater than £20,000)
Column
- C0010Amount
Operational risk: part 2 - minimum required capital (OPR) (SC16.00.01.02)
Row
- R0010Minimum required operational risk capital (ORC)
Column
- C0020ILM (losses greater than £20,000)
Operational risk: part 3 - business indicator component (OPR) (SC16.00.01.03)
Row
- R0010Business Indicator Component (BIC)
Column
- C0010Amount
Operational risk: part 6 - internal loss multiplier (OPR) (SC16.00.01.06)
Row
- R0010ILM (losses greater than £20,000)
Column
- C0010Amount
Which returns it applies to
Line4 Check runs it on the own funds (PRA001) and own funds for SDDTs (PRA116) returns on Bank of England banking taxonomy 4.1.1. The Bank of England applies it to own funds for SDDTs (PRA116) and own funds (PRA001) returns, as a warning.
The Bank’s own words and formula
The first paragraph of the plain words above is the Bank of England’s own, word for word, from its list of validations. The second spells out its formula, with each cell named from its templates.
Show the formulaShowHide
The Bank of England's formula. Cells are written as {t: table, r: row, c: column}.
{t: OF16.00.01.02, r: 0010, c: 0020} = {t: OF16.00.01.03, r: 0010, c: 0010} * {t: OF16.00.01.06, r: 0010, c: 0010}Other rules on Operational risk: part 2 - minimum required capital (OPR) (OF16.00.01.02)
- Operational risk: part 2 - minimum required capital (OPR): values must agree (boe_b0444)
- Risk-weighted assets (RWAs) for Operational risk are equal to 12.5 times Operational Risk Capital (ORC) (boe_b0453)Blocking
- Operational risk capital requirements (ORC) are calculated by multiplying the BIC and the ILM (which is set equal to 1) (boe_b0509)Blocking
Every PRA banking rule on OF16.00.01.02
Checks like this one, run at the point of submission, are the first step to real-time supervision. Line4 builds SupTech software for financial regulators that runs checks like these as each return arrives.