Netting of income and expenses and mutualisation of losses for IPS in the Service Component of the Business Indicator (BI)

To which items of the Services Component, the net of “ any income received from, or expenses paid to”  of the second paragraph of Art. 314(5) refers to? It is unclear whether it refers to all the items of the Services Component, to the income and expenses of the “Fee & Commission” or to the income and expenses of the “Other Operating” as defined in Art. 314(5) first paragraph.  The last sentence of Art. 314(5) provides the following: “ Any losses resulting from the related operational risks are subject to mutualisation across institutional protection scheme members. ” Is it a requirement for the use of the netting exemption? Can institutions that are members of an institutional protection scheme meeting the requirements of Article 113(7) apply the netting or can such institutions apply the netting only if there is a mutualisation by the Institutional Protection Scheme (IPS)? Is this mutualisation referring to threatening operational risk losses only or to any losses resulting from the related operational risk events?

Art. 314 (5) CRR III states that: “ Subject to the prior permission of the competent authority, and to the extent that the institutional protection scheme has at its disposal suitable and uniformly stipulated systems for the monitoring and classification of operational risks, institutions that are members of an institutional protection scheme meeting the requirements of Article 113(7) may calculate the services component net of any income received from, or expenses paid to, institutions that are members of the same institutional protection scheme. Any losses resulting from the related operational risks are subject to mutualisation across institutional protection scheme members .” In the article above, it is not clear how to interpret the word “any” in the first and second sentence, when referring respectively to the net of income received from, or expenses paid to, institutions that are members of the same IPS, and to the losses subject to mutualisation across IPS members. In case “ any income received from, or expenses paid to ” in the first sentence refers to all income and expenses, this would imply that losses, expenses, provisions, and other financial impacts from operational risk events (the main contributor of the Other Operating Expenses), would be deducted from the Services Component, hence they would not contribute to the BI and to the regulatory capital on operational risk.  In case “ any losses resulting from the related operational risks ” in the last sentence refers to all the operational risk losses, the institution protection scheme should mutualise losses of any size from other institution protection scheme members.  A full mutualisation of losses should not be the expectation here, since the existence of a complete mutualisation of any losses resulting from the related operational risks could be considered as a moral hazard potentially reducing the institution's incentive to manage risks responsibly.