In the context of operational risk, the standardized approach or standardised approach is a set of operational risk measurement techniques proposed under Basel II capital adequacy rules for banking institutions.
Basel II requires all banking institutions to set aside capital for operational risk.
In any given year, negative capital charges (resulting from negative gross income) in any business line may offset positive capital charges in other business lines without limit.
In order to qualify for use of the standardised approach, a bank must satisfy its regulator that, at a minimum: On March 4, 2016, the Basel Committee on Banking Supervision finally updated its proposal for calculating operational risk capital, introducing the Standardized Measurement Approach (“SMA”).
Under the SMA, regulatory capital levels will be determined using a simple formulaic method which facilitates comparability across the industry.