Calculation of 3 year indicator at consolidated level where figures for individual entities are negative

As stated in Articles 315(1) and (4) of Regulation (EU) No 575/2013 (CRR), “ Under the Basic Indicator Approach, the own funds requirement for operational risk is equal to 15 % of the average over three years of the relevant indicator as set out in Article 316. ” and “ Where for any given observation, the relevant indicator is negative or equal to zero, institutions shall not take into account this figure in the calculation of the average over three years .”. In the minimum regulatory capital calculation, it has to be differentiated between the calculation on legal entity level and the calculation on group level. Article 315(4) CRR is applicable at consolidated level as well as at entity level. This means that for the calculation of capital requirements the different levels are not to be mixed and the capital requirement of each subsidiary or the group should be calculated only based on the audited income statement data at the subsidiary level, and the capital requirement of the group should be calculated only based on the audited income statement data at consolidated level. Therefore, if at consolidated level, the “negative” years of solo entities affect the income statement by reducing the total figure, these negative years have to be included (that is, deducted) within the total figure. If the resulting consolidated total figure of one specific year is equal to zero or negative, the non-positive consolidated figure of this specific year should not be used (not even any “positive” figure of any solo entity for this specific year) neither in the numerator nor in the denominator of the capital requirements calculation at consolidated level. Consequently, in the very simplified example given, at entity level, Year 3 of Sub 1 cannot be considered in the calculation of the 3 year indicator for Sub 1 (in this case only Year 1 and Year 2 have to be considered and their sum has to be divided by 2 instead of 3). However, in the same example, at consolidated level, Year 3 of Sub 1 has to be considered for the calculation of the consolidated operational risk requirements.