The rule in plain words
ILM (for losses greater than £20,000) is calculated as ln (exp(1) - 1 + (LC/BIC)^0.8), where LC = 15* R0050, C0110 in the Historical Losses table
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.
What to do if your return fails it
- 01Open the tables below and find the cells the rule reads.
- 02The check applies only when its first part holds in your return. When it does, the second part must hold too: fix the second part, or correct the first.
- 03This is a warning. It does not stop the return on its own, but your supervisor may ask you to explain it.
The cells it reads
Operational risk: part 3 - business indicator component (OPR) (OF16.00.01.03)
Row
- R0010Business Indicator Component (BIC)
Column
- C0010Amount
Operational risk: part 5 - historical losses (OPR) (OF16.00.01.05)
Row
- R0050Total amount of operational losses net of recoveries and net of excluded losses
Column
- C0110Ten-year average
Operational risk: part 6 - internal loss multiplier (OPR) (OF16.00.01.06)
Row
- R0010ILM (losses greater than £20,000)
Column
- C0010Amount
Which returns it applies to
It is an active check of the Bank's for the own funds (PRA001) and own funds for SDDTs (PRA116) returns on Bank of England banking taxonomy 4.1.1. Line4 Check does not run it yet, for the reason above. 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 plain words above are the Bank of England’s own, word for word, from its list of validations.
Show the formulaShowHide
The Bank of England's formula. Cells are written as {t: table, r: row, c: column}.
if (({t: OF16.00.01.03, r: 0010, c: 0010} != 0) and (({t: OF16.00.01.05, r: 0050, c: 0110}/ {t: OF16.00.01.03, r: 0010, c: 0010}) >= 0)) then {t: OF16.00.01.06, r: 0010, c: 0010} = log((2.71828182845905 - 1 + exp((15 * {t: OF16.00.01.05, r: 0050, c: 0110} / {t: OF16.00.01.03, r: 0010, c: 0010}), 4, 5)), eulerConst()) else true()The same code in the own funds for SDDTs (PRA116) return: another check
The Bank of England uses boe_b0599 for a different check in the own funds for SDDTs (PRA116) return. There it is a warning on operational risk: part 3 - business indicator component (OPR) (SC16.00.01.03), operational risk: part 5 - historical losses (OPR) (SC16.00.01.05) and operational risk: part 6 - internal loss multiplier (OPR) (SC16.00.01.06).
ILM (for losses greater than £20,000) is calculated as ln(exp(1) - 1 + (LC/BIC)^0.8), where LC = 15* R0050, C0110 in the Historical Losses table
Operational risk: part 3 - business indicator component (OPR) (SC16.00.01.03)
Row
- R0010Business Indicator Component (BIC)
Column
- C0010Amount
Operational risk: part 5 - historical losses (OPR) (SC16.00.01.05)
Row
- R0050Total amount of operational losses net of recoveries and net of excluded losses
Column
- C0110Ten-year average
Operational risk: part 6 - internal loss multiplier (OPR) (SC16.00.01.06)
Row
- R0010ILM (losses greater than £20,000)
Column
- C0010Amount
The plain words above are the Bank of England’s own, word for word, from its list of validations.
Show the formulaShowHide
The Bank of England's formula. Cells are written as {t: table, r: row, c: column}.
if (({t: SC16.00.01.03, r: 0010, c: 0010} != 0) and (({t: SC16.00.01.05, r: 0050, c: 0110}/ {t: SC16.00.01.03, r: 0010, c: 0010}) >= 0)) then {t: SC16.00.01.06, r: 0010, c: 0010} = log((2.71828182845905 - 1+ exp((15 * {t: SC16.00.01.05, r: 0050, c: 0110}/ {t: SC16.00.01.03, r: 0010, c: 0010}), 4, 5)), eulerConst()) else true()Other rules on Operational risk: part 3 - business indicator component (OPR) (OF16.00.01.03)
- Operational risk: part 3 - business indicator component (OPR): a conditional check (boe_b0600)Not run
- The Business Indicator Component (BIC) is equal to the sum of the amounts in Bucket 1, Bucket 2, Bucket 3 (boe_b0456)Blocking
- To calculate the BIC for Bucket 1 when the BI amount is less than or equal to £0.88bn, the BI is multiplied by 12% (boe_b0909)
- This represents the BIC for Bucket 2 when the BI range is between £0.88bn and £26bn, using a 15% marginal coefficient (boe_b0910)
- Operational risk: part 3 - business indicator component (OPR): bucket 3 BIC represents 18% of the BI amount greater than £26bn (boe_b0911)
- Operational risk: part 3 - business indicator component (OPR): business Indicator Bucket 1 is mandatory and must not be empty (boe_b0913)Blocking
- A positive amount has been reported in Bucket 3 of the BI component, therefore, Bucket 2 cannot be blank (boe_b0914)
Every PRA banking rule on OF16.00.01.03
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.