The Max Single Loss and the Top 5 Largest Loss Controls do not consider losses re-allocated from one business line to another.

Taking into account the background described in the present form, should the EGDQ_0088a and EGDQ_0082 be set up as non-blocking? If not, what should be the financial institution’s approach, regarding BBL allocation, on situations where a past loss has increased and is transferred to another BBL between two reporting period?

We have noticed that the EGDQ_0088a, which states that “the sum of the five largest losses  over all business lines must be greater or equal to the maximum of all sums of the five largest losses in all business lines”, and the EGDQ_0082, which states that “the maximum single loss reported in {c0080} must be the maximum single loss within a business line and identical to the maximum of the maximum single losses reported in all business lines”, may be too restrictive. A breach  in this control may be triggered by a transversal event with positive and negative adjustment on different BBL.   In such cases, the variations in some individual business line are expected to be greater than the variation across all business lines (as, at financial institution level there is a limited change). This may cause the loss adjustment variation to be the Maximum single loss or to be part of the calculation of the Top 5 largest losses in a specific business line, but not to be part of the same calculation for the total business lines (ie. financial institution level).   As it is mentioned in Article 130 of the Implementing Regulation No 680/2014, it is possible that losses corresponding to one event are distributed amongst several business lines. This means that we must consider the impact of a loss adjustment within each business line, in order to obtain its global impact at a total business lines level.   Example of an operational event causing a loss: the loss is firstly allocated to one BL (by end of reporting period 1). But after internal discussion on root cause and responsibilities, the loss is re-allocated to another Business line (beginning of reporting period 2). The flow is therefore deducted from the first BL to be allocated to the second, with a limited impact at a financial institution level.   Therefore, in these situations, which are bond to occur whenever there is a business line loss re-allocation, the controls EGDQ_0088a and EDGQ_0082 can fail (specifically for some event types with a limited number of event).   In a transparent approach, these controls could be set up as not blocking the C17.01 template submission and related cases causing the breach can be explained in a comment section.