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The residual risk add-on must be calculated in addition to any other capital requirements within the standardised approach. The residual risk add-on is to be calculated as follows.
(1)
The scope of instruments that are subject to the RRAO must not have an impact in terms of increasing or decreasing the scope of risk factors subject to the delta, vega, curvature or DRC treatments in the standardised approach.
(2)
The RRAO is the simple sum of gross notional amounts of the instruments bearing residual risks, multiplied by a risk weight.
(a)
The risk weight for instruments with an exotic underlying specified in [9.3] is 1.0%.
(b)
The risk weight for instruments bearing other residual risks specified in [9.4] is 0.1%.39
39 Where the bank cannot satisfy the RRAO provides a sufficiently prudent capital charge, then the bank will address any potentially under-capitalised risks by imposing a conservative additional capital charge under Pillar 2.
