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HMRC internal manual

International Manual

Foreign banks trading in the UK through permanent establishments: The approach in determining an adjustment to funding costs - STEP 2: Risk weighting the assets - the Basel II regulatory regime: Pillar 1 - the standardised approach to operational risk

Under TSA the bank’s activities are divided into eight business lines. The capital required to support the operational risk is calculated by multiplying the gross income from each business line by the relevant indicator assigned to it by the Financial Services Authority (FSA). This gives the operational risk capital requirement for the year for that business line. The total operational risk capital requirement is the average of the sum of the capital charges across all business lines in the three preceding years.

The business lines and indicators are:

Business Line Indicator  
Corporate Finance 18%  
Trading and sales 18%  
Retail Brokerage 12%  
Commercial Banking 15%  
Payment and settlement 18%  
Agency services 15%  
Asset management 12%  
Retail banking 12%  

Details of the activities within each business line can be found at “Prudential sourcebook for Banks, Building Societies and Investment Firms” (BIPRU) 6.4.15.