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FRM Part II · FRM Exam Part II · High-level Summary of Basel III Reforms

Under the Basel III reforms finalised in 2017, which statement best describes the treatment of operational risk capital for banks?

The Basel III finalisation replaces all earlier operational risk approaches, including the Advanced Measurement Approaches, with a single non-model-based standardised approach. Banks no longer choose among methods, and internal models are not used for operational risk capital under the new framework.

  1. ABanks may continue to choose between the Basic Indicator Approach, the Standardised Approach and the Advanced Measurement Approaches
  2. BThe Advanced Measurement Approaches are retained for internationally active banks, with the new standardised approach used only as a floor
  3. CA single non-model-based standardised approach replaces all earlier approaches, including the Advanced Measurement ApproachesCorrect
  4. DOperational risk capital is set as a fixed 8% of risk-weighted assets for credit risk

Explanation

The 2017 reforms removed the Basic Indicator, earlier Standardised and Advanced Measurement Approaches and replaced them with one non-model-based standardised approach. Option B is wrong because the AMA is withdrawn entirely, not kept as a floor.

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