Clearstream has been granted approval by Luxembourg’s regulator, the Commission de Surveillance du Secteur Financier (CSSF) to start using the Advanced Measurement Approach (AMA) for the calculation of its own funds requirements for operational risk, making it the first International Central Securities Depository to receive such an agreement.
The CSSF approval is for Clearstream International including Clearstream Luxembourg (CBL) and Clearstream Frankfurt (CBF).
Under the Basel II Accord, credit institutions and investment firms are required for the first time to calculate a capital requirement for operational risk as of January 2008. To calculate this, they can choose between three possible approaches, each with a rising degree of complexity and risk sensitivity: the Basic Indicator Approach, the Standardized Approach and the Advanced Measurement Approach.
The first two approaches do no require the approval of a regulator.
The AMA is based on internal models to calculate the regulatory capital requirement and requires the regulator’s approval for the whole operational risk management framework, including model and procedures. Clearstream chose this approach because, as an ICSD and key infrastructure provider, operational risk management is an essential component of management and control of operations.
Clearstream applied for AMA with the CSSF in July 2007. After a six month validation process of Clearstream’s operational risk framework, including an on-site inspection, the regulators granted their approval in January.
“We saw AMA as the most transparent approach with regard to market position, competitors and customers, and as further strengthening operational risk management. The CSSF approval demonstrates the strength of Clearstream’s operational risk framework throughout all areas of the company,” says Jeff Tessler, CEO, Clearstream.