| 9.2.1 | Banks must be able to identify the gross loss amounts, non-insurance recoveries, and insurance recoveries for all operational loss events. Banks should use losses net of recoveries (including insurance recoveries) in the loss dataset. However, recoveries can be used to reduce losses only after the bank receives payment. Receivables do not count as recoveries. Verification of payments received to net losses must be provided to SAMA upon request.
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| 9.2.2 | The following items must be included in the gross loss computation of the loss data set:
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| | a) | Direct charges, including impairments and settlements, to the bank’s P&L accounts and write-downs due to the operational risk event;
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| | b) | Costs incurred as a consequence of the event including external expenses with a direct link to the operational risk event (e.g. legal expenses directly related to the event and fees paid to advisors, attorneys or suppliers) and costs of repair or replacement, incurred to restore the position that was prevailing before the operational risk event;
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| | c) | Provisions or reserves accounted for in the P&L against the potential operational loss impact;
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| | d) | Losses stemming from operational risk events with a definitive financial impact, which are temporarily booked in transitory and/or suspense accounts and are not yet reflected in the P&L (“pending losses”).4 Material pending losses should be included in the loss data set within a time period commensurate with the size and age of the pending item; and
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| | e) | Negative economic impacts booked in a financial accounting period, due to operational risk events impacting the cash flows or financial statements of previous financial accounting periods (timing losses”).5 Material “timing losses” should be included in the loss data set when they are due to operational risk events that span more than one financial accounting period and give rise to legal risk.
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| 9.2.3 | The following items should be excluded from the gross loss computation of the loss data set:
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| | a) | Costs of general maintenance contracts on property, plant or equipment;
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| | b) | Internal or external expenditures to enhance the business after the operational risk losses: upgrades, improvements, risk assessment initiatives and enhancements; and
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| | c) | Insurance premiums.
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| 9.2.4 | Banks must use the date of accounting for building the loss data set. The bank must use a date no later than the date of accounting for including losses related to legal events in the loss data set. For legal loss events, the date of accounting is the date when a legal reserve is established for the probable estimated loss in the P&L.
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| 9.2.5 | Losses caused by a common operational risk event or by related operational risk events over time, but posted to the accounts over several years, should be allocated to the corresponding years of the loss database, in line with their accounting treatment.
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4 For instance, the impact of some events (e.g. legal events, damage to physical assets) may be known and clearly identifiable before these events are recognized through the establishment of a reserve. Moreover, the way this reserve is established (e.g. the date of discovery) can vary across banks.
5 Timing impacts typically relate to the occurrence of operational risk events that result in the temporary distortion of an institution’s financial accounts (e.g. revenue overstatement, accounting errors and mark-to- market errors). While these events do not represent a true financial impact on the institution (net impact over time is zero), if the error continues across more than one financial accounting period, it may represent a material misrepresentation of the institution’s financial statements.
