The EBA Responds to the Commission’s Proposed Changes to Its Draft Technical Standards on Operational Risk

Why It Matters

Mixing AA and PBA could create regulatory arbitrage and supervisory gaps, undermining the EU’s harmonised operational‑risk framework and capital adequacy oversight.

Key Takeaways

• EBA opposes mixing accounting and prudential boundary approaches.
• Combined approaches could create inconsistencies and regulatory arbitrage.
• Limiting PBA change notifications may weaken supervisory oversight.
• EBA supports remaining amendments that enhance clarity and legal certainty.

Pulse Analysis

The European Banking Authority’s latest opinion underscores the delicate balance between regulatory flexibility and the need for a uniform operational‑risk framework across the EU. The RTS, originally drafted by the EBA in 2025, translate Basel‑III standards into concrete capital‑requirement rules for banks’ business indicators, profit‑and‑loss adjustments, and risk taxonomy. While the European Commission seeks to modernise these rules, its proposal to allow simultaneous use of the accounting approach (AA) and the prudential boundary approach (PBA) diverges from Basel’s single‑method guidance, raising concerns about methodological fragmentation and potential loopholes for larger institutions.

The EBA’s objections focus on two core issues. First, permitting a hybrid AA‑PBA calculation could increase model complexity, generate divergent risk metrics across banks, and open avenues for regulatory arbitrage where firms cherry‑pick the most favourable components. Second, the draft’s suggestion to restrict notification of material PBA scope changes to only the most significant alterations would shift materiality judgments to individual institutions, complicating supervisory reviews and weakening the European supervisory authorities’ ability to detect emerging operational‑risk exposures promptly. By maintaining a single‑approach requirement, the EBA aims to preserve consistency, enhance transparency, and safeguard the integrity of capital buffers.

If the Commission adopts the EBA’s recommendations, the EU banking sector will retain a clearer, more predictable operational‑risk regime, supporting market confidence and cross‑border comparability. Conversely, embracing the contested amendments could spur a patchwork of risk‑measurement practices, challenging supervisors and potentially inflating capital costs for banks that must reconcile divergent methodologies. The EBA’s support for the remaining amendments—those that improve readability and legal certainty—signals a willingness to refine the RTS without compromising core principles. Stakeholders should monitor forthcoming negotiations, as the final shape of the RTS will influence banks’ capital planning, risk‑management systems, and the broader stability of the European financial system.