6 The insurance is provided by a third party entity If not the exposure has to

6 the insurance is provided by a third party entity

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(6) The insurance is provided by a third-party entity. If not, the exposure has to be transferred to an independent third-party entity, for example through re-insurance, to meet the eligibility criteria. (7) The framework for recognizing the risk mitigation of insurance must be well reasoned and documented. (8) The bank must disclose a description of its use of insurance for the purpose of mitigating operational risk. 3. A bank’s recognition of insurance under the AMA also needs to capture the following elements to adjust the mitigating effect of insurance: (1) The treatment of policy with a residual term of less than one year. (2) Is the notification period in the policy’s cancellation terms less than one year? (3) The uncertainty of payment as well as mismatches in coverage of insurance policies. (I) Principles for selecting (combining) measurement methodologies 1. A bank will be permitted to use an AMA for some parts of its operations and the Basic Indicator Approach or Standardized Approach for the balance (partial use), provided that the following conditions are met: (1) All operational risks of the bank are captured; (2) All of the bank’s operations that are covered by the AMA meet the qualitative criteria for using AMA, while those parts of its operations that are using one of the simpler approaches meet the qualifying criteria for that approach; (3) On the date of implementation of an AMA, a significant part of the bank’s operational risks are captured by the AMA; and (4) The bank provides the supervisory authority with a plan specifying the timetable to which it intends to roll out the AMA across all business lines (except for a few immaterial businesses). The plan should be driven by the practicality and feasibility of moving to the AMA over time, 221
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and not for other reasons. 2. Subject to the approval of the supervisory authority, a bank opting for partial use may determine which parts of its operations will use an AMA on the basis of business line, legal structure, geography, or other internally determined basis. 3. Subject to the approval of its supervisor, where a bank intends to implement an approach other than the AMA on a global, consolidated basis, the bank may, under special circumstances: (1) Implement an AMA on a permanent partial basis; or (2) Include in its global, consolidated operational risk capital requirements the results of an AMA calculation at a subsidiary where the AMA has been approved by the relevant host supervisor and is acceptable to the bank’s home supervisor. 4. Exceptional approvals of special circumstances should generally be limited to circumstances where a bank is prevented from meeting these conditions due to implementation decisions of supervisory authority of the bank’s subsidiary operations in foreign jurisdictions.
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