In March 2010, the BBVA Group received authorization from the Bank of Spain to apply advanced models for the calculation of regulatory capital for operational risk in both Spain and Mexico. This makes it the only financial institution to date that has obtained qualification from the Bank of Spain for advanced operational risk models. The authorization marks the culmination of a process of cultural change launched in 2000 when the Group began operational risk management for strategic reasons. Regulatory incentives later contributed to this process through the establishment of regulatory capital under Basel II.
The value levers for the Group in the advanced measurement approach (AMA) for operational risk are as follows:
- Active management of operational risk and its integration into day-to-day decision making (management) mean:
- Knowledge of the real losses associated with this risk (SIRO database).
- Identification and prioritization of potential and real risk factors, using a quantification of estimated losses that includes the impact on the business (Ev-Ro exercises).
- Having indicators that enable variations in operational risk over time to be analyzed and warning signs defined (TransVar tool).
The above helps to create a proactive model for control and business decision-making, and for prioritizing the efforts to mitigate relevant risks by reducing the Group’s exposure to extreme events.
- Improved control environment and strengthened corporate culture.
- Generation of a positive reputational impact.
- The opportunity for saving in regulatory capital when the Bank of Spain authorizes the elimination of the lower limit. The requirement and authorization by the Bank of Spain initially establish a floor on savings in regulatory capital, according to the capital corresponding to the standard method. The authorization also lists a series of improvements that will result in effective savings in capital for operational risks for the Group, once the model is implemented.
At the start of 2010, the Bank made the decision to integrate the central units dedicated to the management of operational risk and internal control into the Internal Control and Operational Risk unit. The aim was to strengthen the synergies between the two models, streamline work systems and focus efforts on the most relevant issues. A new integrated working methodology has been developed for Internal Control and Operational Risk. It will be implemented in the Group’s units starting in 2011.
Operational risk management in BBVA is carried out by country. Each country has an Internal Control and Operational Risk (CIRO) unit in the Risk area. In turn, there is an internal control and operational risk unit in each business or support area that answers to the country CIRO. This gives the Group a view of risks at the macro level, as well as at the process level where mitigation decisions are taken