Definitions and notes to the reports of operatsional risk incidents and loss events
Incidents and loss events
Operational risk means the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. The definition includes legal risk, but excludes strategic, reputation and system risks.
Operational risk loss events are the operational risk events which have an effect on the profit or capital of the credit institution and the consolidation group of the credit institution.
Operational risk incidents are the operational risk events as a result of which the credit institution or consolidation group of the credit institution does not suffer financial losses which would affect its profit or capital, even though financial losses were expected, or as a result of which extraordinary gains were generated.
Classification of the business lines
The business lines are defined based on the § 320 section 4 of the Eesti Pank 29 December 2006 Governor’s decree No. 13 and the § 11 of the Insurance Activities Act.
Organising and underwriting public and private placements of securities; advice on capital planning and strategy and on issues relating to mergers and amalgamations; investment advice; investment research and financial analysis and other forms of general recommendation relating to transactions in financial instruments.
Trading and sales
Trading in securities and other instruments; execution of orders on behalf of clients; management of long-term/strategic investments; margin lending and repurchase transactions; financing and liquidity management (treasury).
Acceptance of deposits and other repayable funds from individual physical persons or small and medium-sized entities meeting the criteria for the retail exposure class; lending; leasing; guarantees; card services.
Acceptance of deposits and other repayable funds; lending; leasing; guarantees; export financing; project financing; factoring.
Payment and settlement
Money transmission services; issuing and administering means of payment.
Safekeeping and administration of financial instruments for the account of clients; administering margin lending.
Portfolio management; managing of CIUs; other forms of asset management.
Reception and transmission of orders in relation to one or more financial instruments from individual physical persons or small and medium-sized entities meeting the criteria for the retail exposure class; execution of orders on behalf of clients.
Life insurance and non-live insurance
Insurance activities mean the acceptance of the risks of a policyholder or insured person by the insurance undertaking on the basis of an insurance contract with the objective to pay indemnities upon occurrence of an insured event.
Reinsurance activity is taking over the insurance risks of the insurance undertaking based on the reinsurance agreement with the purpose to pay agreed indemnities to the insurance undertaking in an agreed amount in connection with the insured event specified in an insurance contract concluded between the insurance undertaking and policyholder.
Categories of the loss events and incidents
The categories of the loss events and incidents are defined based on the § 329 of the Eesti Pank 29 December 2006 Governor’s decree No. 13.
Losses due to acts of a type intended to defraud, misappropriate property or circumvent legislation or internal regulations. Exceptions are the events relating to employment practices and discrimination, which involve at least one internal party.
Losses due to acts of a type intended to defraud, misappropriate property or circumvent legislation, by a third party.
Employment practices and workplace safety
Losses arising from acts inconsistent with employment, health or safety regulations or agreements, from payment of personal injury claims, or from discrimination events.
Clients, products and business practices
Losses arising from an unintentional or negligent failure to meet a professional obligation to clients (including fiduciary and suitability requirements), or from the nature or design of a product.
Damage to physical assets
Losses arising from loss or damage to physical assets due to natural disaster or other events.
Business disruption and system failures
Losses arising from disruption of business or system failures.
Execution, delivery & process management
Losses from failed transaction processing or process management, from relations with trade counterparties and vendors.