2. Voluntary registration

According to VATA, Art. 100, para 1: “Any tax liable person, to whom the terms for compulsory registration under art. 96, par. 1 are not applicable is entitled to be register under VAT”.

3. Registration procedure

According to VATA, Art. 101: “The registration shall be carried out by submission of an application for registration according to an Application form to the competent territorial directorate of the National Revenue Agency by the person, who is obliged or entitled to do the registration”.

In compliance with para 2 from the same article the application shall be submitted:

- personally, in case that the tax liable person is legally capable individual or a sole trader;

- by a person, who has PoA by a law, in case the tax liable person is a legal person or a cooperation;

- by a person, who is authorized according to articles of association, in case the tax liable person is unregistered partnership or insuring fund;

- by the fiscal representative under Art. 135 and in compliance with chapter IV from this study ;

- by a person, explicitly authorised by the persons under the above mentioned bullets by means of a notary certified PoA.

Upon receipt of the Application the authorities of the National Revenue Agency usually request additional documents and/or information from the applicant for the purposes of the registration (such as copy of the court registration or other registration document for companies established after 01.01.2008; turnover records; list of all employees; list of the assets available with the company; trial balances, rental agreements, etc.). Respectively, when applying for VAT registration, it is advisable that a certain set of documents (such as the listed above) are prepared in advance and filed together with the application form, because the process for preparing the whole application set may take some time. The VAT registration should be timely planned in order to avoid missing application deadlines and suffering penalties.

The statutory term for completion of the above VAT registration procedures is up to 14 days (in which the revenue authorities may request the additional documents) after the submission of the standard Application form before the respective revenue authorities.

The VAT registration date will be the date on which the respective certificate is received by the Bulgarian company. The Bulgarian company is NOT allowed to issue invoices with VAT on it before the registration date (i.e. during the registration procedure).

If a Bulgarian company acquires any assets before its VAT registration in Bulgaria, then the Bulgarian company would be generally entitled to refund the input VAT in respect of these assets, which are available with the Bulgarian company at the date of its VAT registration. In order to have the right to refund such VAT, the goods (assets) supplied to the Bulgarian company before the VAT registration date must be used for the economic activity of the Bulgarian company with a right to VAT credit. Additionally, a registration inventory form of the available assets has to be prepared in standard form as at the date of the VAT registration and has to be submitted within seven days to the authorities of the National Revenue Agency.

Please note that the VAT registration is usually performed by the company’s accountant or lawyer at the National Revenue Agency after the company has been established. After the VAT registration was completed, the Bulgarian company would be obliged to comply with the statutory documenting and reporting requirements as per the VATA and the AA.

1. Compulsory VAT registration

According to VATA, Art.96, para 1: “Any tax liable person, who has a taxable turnover of BGN 50.000 or more, for a period, not exceeding the last 12 consecutive months prior to the current month, shall be obliged to submit an application for registration under this law within 14-days term from the expiry of the tax period, during which he has reached this turnover”.

1.1 Compulsory VAT registration based on executed intra-community acquisitions

Bulgaria is an effective member of the EU since January 1st, 2007. In this sense if a Bulgarian company purchase goods or services from EU-based companies registered under VAT there, then the Bulgarian company would have to perform the so called intra-community acquisition for the received goods or services in Bulgaria. In compliance with the Bulgarian VATA, art.99, para 2, upon exceeding the threshold of BGN 20.000 of intra-community acquisition performed in a calendar year, each person is obliged to initiate a registration procedure for VAT purposes on these special grounds.
If an obligation for VAT registration on the above mentioned grounds occurs, then the Bulgarian company should apply for VAT registration not later than 7 days prior to the date of the tax event, the acquisition of which will exceed this threshold.

Regarding the banking systems, recently an interesting trend is being noticed and this is the significant growth in deposits in Bulgaria over the last two months thanks to Greek and Romanian nationals, who rush to stash their savings here, officials and bankers say.

The deposits of foreign citizens and companies in local banks have increased by BGN 18 M and BGN 49 M respectively in June over the previous month, according to figures, cited by 24 Hours daily.

“There has been recently a noticeable trend among Greek citizens and businesses, who prefer to open deposit accounts in Bulgarian banks,” Maria Ilieva, CEO of MKB Unionbank, the 12th largest bank by assets in the country, said the daily.

The Bulgarian banks stability and their more attractive interest rate policy are the main reasons for the interest of Greek and Romanian citizens and companies, according to the bankers. This seems like a greatly appreciated advantage by foreign investors and individuals and leads to the conclusion that Bulgaria is among the few countries in Europe with good corporate deposit rates and a pretty stable and reliable banking system. This important advantage together with others, such as the lowest tax rates within the EU, many market opportunities, competent and skilled workforce, etc. lead to the conclusion that Bulgaria is a strategically good destination for foreign investments and this is being proven every day with the growing number of direct foreign investments flow.

With this report presentation we will continue with the macroeconomic analysis of Bulgaria as it is today, compared to the economic, financial and political current situation in the other countries from the so-called emerging European market. It is our belief that such independent reports are truly enlightening and useful in understanding and assessing the Bulgarian market together with the investment opportunities, challenges and risks, related to it.

According to the Europe markets’ latest report regarding “the ability to pay” matter among emerging European sovereigns, Bulgaria is ranked 6th in the overall ranking. But let us first clarify the term “ability to pay”.

The “ability to pay” term indicates the level to which a certain country is capable of meeting its current and future debt obligations. It is pretty much related to the fiscal situation of the certain country and to another economic term “willingness to pay”, which basically describes the maximum amount that a country would be willing to pay, sacrifice or exchange in order to receive a good or avoid something undesired. The ability to pay term is indicative for the overall fiscal position of the country, as well as its fiscal discipline, financial and political stability and home demand levels. The bigger “the ability to pay” indicator is, the lower the sovereign risk rating, which is an essential decision-making tool for a future investment opportunity.

Bulgaria demonstrates a very decent position in this ranking by being placed ahead of countries like Poland, Latvia, Turkey, Hungary, Croatia, Ukraine, Romania, etc. The overall conclusion of the report is very optimistic, not only regarding Bulgaria, but also regarding the entire emerging European market, which demonstrates a serious improvement and strategic growth.

The above presented is very much related to one very positive political and economic act of the Bulgarian government which is predicted to contribute greatly to the country’s economic and fiscal discipline and respectively to attract a lot of foreign investment flows. This is the so-called Financial Stability Pact. The three main pillars of this pact are planned to be forced into action so that a further fiscal stability is reached through the highest country law – the constitution. Most certainly, this amendment, together with its consequences, will mostly influence the foreign direct investments rate by providing a high level of insurance and additional guarantee for financial stability.

As an idea and an investment assurance tool, the Financial Stability Pact is planned to deliver the following outcomes. It will ensure that limits of the allowed budget deficit are in place, which having the nature of a law will definitely contribute to preventing a probable deep financial crisis, regardless of the government in charge. It will also restrict the ability of the state to redistribute public funds as a percentage of the GDP and last, but not least, it will ensure that no changes of Bulgarian tax rates will be accepted unless two-thirds of the Parliament members submit their vote for this.

These government measures are aimed to secure that the budget deficit will not exceed 2% of the country’s GDP and that the tax environment, being famous as the most favourable in the EU, will not easily and unjustified change. According to the Bulgarian financial minister, the Financial Stability Pact is certainly going to “cement” Bulgaria as having one of the strictest fiscal policies in the European Union.

Some would suggest that it is not proven whether these companies are established for the realization of serious business intentions, but the figures indicate that since the beginning of this year up until now, only 6 Greek companies has been dissolved, compared to 179 re-registered and 418 newly registered. This serious retention level of the actual functioning Greek companies comes to show that the investments directed to the Bulgarian market and their rates of return have been assessed positively by the investors. We are now in a position to start talking about a short-term turning into a middle-term tendency.

The trend of growing Greek investment interests in Bulgaria is not a surprise. It has been forecasted by many economists and strongly justified by the dramatic outcome of the economic and financial crisis in Greece on one hand, and the numerous advantages that the Bulgarian market has to offer on the other.

Bulgaria is the country with the lowest VAT tax, Personal Income Tax and Corporate Tax rates within the European Union (see table 1). Moreover, less than a month ago the Parliament accepted the so called “Financial Stability Pact” which main mission is to ensure a financial and fiscal stability in the country by freezing the tax rates and making the procedure for increasing them much harder.

Of course, taxes are not the only stimulator of attraction for the Greek companies coming to Bulgaria. As many Greeks claim, Bulgarian low prices of food, transportation, rents and real estates are serious incentives for moving business here. In addition, businessmen are seriously attracted by the much lower priced labor force and the big diversity of unexplored investment opportunities.

In an interview for a Bulgarian TV channel, Evangelos Litras, deputy president of the Greek Business Board, stated that due to the recession it is absolutely normal and completely understandable that most of the Greek companies migrate to Bulgaria and that he expects this tendency to continue. Mr. Litras admitted that Bulgaria is destination №1 for Greek investors and this is mainly because of the very close map location, Bulgaria’s strict fiscal discipline and for having one of the lowest external debts among all the EU countries.

It can be sum up that Greece, being the forth bigger foreign investor in Bulgaria, after the Netherlands, Belgium and Cyprus, will be looking up to Bulgaria more and more often from now on and this is seriously going to improve and diversify the investment climate in Bulgaria.

The industry in Bulgaria, in general, is forecasted to show a real improvement, due to many factors related to the very high level of strategic export and the growth into the level of foreign direct investments. Exports, being a real driving force of economic recovery for the last couple of years, will continue its robust growth trend. The increase for 2011 is with 9.0%, compared to the figures back in 2010. So far Bulgaria has been mainly exporting to the countries from the European Union but after the recommendations of the International Monetary Fund it is expected that new markets will be explored and new strategic export relationships will be established. The International Monetary Fund recently reported that Bulgaria has the needed potential and quality standards which can help it to successfully expand its export destinations outside of the EU. According to the Fund, the export good figures, together with the strong fiscal discipline have the potential to push the real growth of the Bulgarian GDP to 3% by the end of 2011.

The stable economic system, together with the strong fiscal discipline in Bulgaria are highly appreciated by the latest evaluation reports of the International Monetary Fund, World Bank and foreign investors which number constantly grows. Recently Bulgaria has put great efforts in conducting important structural reforms which already produce good results in the public and private sectors. These results are expected to be the key factors for increasing the potential growth in economy. This together with the political desire for an efficient adopting of the EU funds are expected to push Bulgaria forward and prevent the deep recession which many countries, like Greece, Portugal and Ireland, has fallen to.

It is stipulated in the Act with regard to the requirements of Council Directive 2008/117/EC that in the cases of supplies with continuous execution with duration for a time period longer than a year, and for which no payment has been due for a time period longer than a year, it shall be deemed that the tax event occurs at the end of each calendar year.

Tax basis

Amendments have been implemented concerning the determination of the tax basis with regard to supplies under barter conditions. The tax basis shall be the market price for each of the received goods or services.

Tax credit

The term for exercising the right to deduct tax credit was amended. The term was changed from a three-month to a 12-month one. Thus the principle of effectiveness shall be respected and exercising the right to deduct tax credit shall not be made difficult by the term adopted. Greater equal treatment shall also be attained with taxpayers (self-accrual) who may exercise the right to deduct tax credit in the events when the supply has not been concealed and there are data about it available in the accountancy of the recipient as well as with persons who are entitled to deduct tax credit for goods or services they receive.

Special procedure of taxation of the price margin

Amendments were made of the provisions with regard to the application of a special procedure of taxation of the price margin. The restrictions for the right of tax credit for supplies received by a dealer, which they use to realize sales of second-hand goods, were removed. The tax basis in case of sale of goods by a dealer in conformity with the general procedure established by the law shall now be formed in accordance with the generally adopted procedure.

Exempt supplies under international contracts and supplies, whose recipients are the armed forces of foreign countries or an institution of the European Union.

In connection with decreasing the administrative burden in implementing the activities and obligations of the institutions of the European Communities in the Republic of Bulgaria, an amendment was made with regard to the documents needed for proving zero rate by the supplier for supplies of goods or services with place of execution on the territory of the country. The amendment was with a view to more comprehensive and accurate application of the Agreement for Implementation of the Protocol on the Privileges and Immunities of the European Communities in the Republic of Bulgaria.

Registration and deregistration

Provisions were introduced concerning mandatory registration and deregistration of persons supplying or receiving services in compliance with the requirements of the Directive as well as transitional provisions with regard to advance payments effected.

A new requirement was created in the registration procedure – to declare an electronic correspondence address with the administration.

An amendment was made to eliminate problems arisen in practice during deregistration of persons, according to which when the person is deregistered and registers again voluntarily within the same taxable time period, only one Tax Return Form shall be submitted for the period.

The regime of specific cases of registration with an accredited representative was changed and new provisions were adopted, regulating the cases where registration shall be performed in accordance with the generally established procedure and the cases where registration may also be performed without an accredited representative being defined.

Measures against tax frauds

Provisions were adopted where the person registering in conformity with the law should declare an electronic correspondence address with the revenue administration. These amendments are directed at limiting the possibilities to extend the proceedings under the law, aiming to save time and resources of the administration without limiting the rights of diligent taxable persons.

Amendments were made to allow the revenue authorities to reject or terminate registration under the law to persons who have public liabilities collected by the National Revenue Agency. Until now the measure was applied solely with regard to tax liabilities. With the amendment made the revenue authority will be in a position to reject or terminate registration also in case the obligation for depositing mandatory social security contributions is not complied with. Another amendment was also made concerning the right of choice of the revenue administration – “to be in a position to reject” registration or termination of registration in special cases. The new revision shall not provide the persons with the possibility to deliberately place themselves beyond the scope of the Value Added Tax Act and in practice to perform taxable supplies without accruing tax for them.

Documenting the supplies, declaring and reporting

The persons registered on the grounds of Art. 97а shall not be entitled to indicate the tax in the invoices they issue;

The mandatory requisites “name and surname of the compiler” in the invoice have been repealed;

The Protocol pursuant to Art. 117 shall mandatorily contain both the grounds for accrual and the grounds for non-accrual of the tax;

The persons performing supplies of services under Art. 21, Para. 2 with place of provision on the territory of another Member State shall be added to the persons required to submit a VIES declaration (Recapitulative Statement) along with the Tax Return Form.

Provisions were adopted in connection with the measures against the grey economy with regard to the provision of remote connection between the National Revenue Agency and the fiscal cash register devices used by the persons.

Offset, deduction and reimbursement of a result for the time period – tax for refunding.

With the amendments adopted, the deduction related procedure as of 01.01.2010 is bimonthly and the term for refunding the tax by the revenue administration was shortened – from a 45- to a 30-day one.

Compulsory administrative measures and administrative penal provisions.

Amendments made in imposition of sanctions by the administration as follows:

The infringements and respectively the sanctions were distinguished for persons who do not issue a fiscal cash receipt note and for a person who violates the procedure and the manner for approval of the type, registration or putting into/out of operation, or reporting, or maintenance of the fiscal devices or persons who do not establish a remote connection with the National Revenue Agency

The enforcement administrative measure – placement of an object under seal for a term of up to one month shall also be applied with regard to persons who do not observe the procedure and the manner for submission of data along a remote connection with the National Revenue Agency

A provision is added for offenders within the meaning of Art. 186 stating that in case of repeated infringement the unsealing of an object shall not be performed within the framework of one month regardless of the fact that the penalty or the property sanction has been paid in full.

Tax event

It is stipulated in the Act with regard to the requirements of Council Directive 2008/117/EC that in the cases of supplies with continuous execution with duration for a time period longer than a year, and for which no payment has been due for a time period longer than a year, it shall be deemed that the tax event occurs at the end of each calendar year.

Tax basis

Amendments have been implemented concerning the determination of the tax basis with regard to supplies under barter conditions. The tax basis shall be the market price for each of the received goods or services.

Tax credit

The term for exercising the right to deduct tax credit was amended. The term was changed from a three-month to a 12-month one. Thus the principle of effectiveness shall be respected and exercising the right to deduct tax credit shall not be made difficult by the term adopted. Greater equal treatment shall also be attained with taxpayers (self-accrual) who may exercise the right to deduct tax credit in the events when the supply has not been concealed and there are data about it available in the accountancy of the recipient as well as with persons who are entitled to deduct tax credit for goods or services they receive.

Special procedure of taxation of the price margin

Amendments were made of the provisions with regard to the application of a special procedure of taxation of the price margin. The restrictions for the right of tax credit for supplies received by a dealer, which they use to realize sales of second-hand goods, were removed. The tax basis in case of sale of goods by a dealer in conformity with the general procedure established by the law shall now be formed in accordance with the generally adopted procedure.

Exempt supplies under international contracts and supplies, whose recipients are the armed forces of foreign countries or an institution of the European Union.

In connection with decreasing the administrative burden in implementing the activities and obligations of the institutions of the European Communities in the Republic of Bulgaria, an amendment was made with regard to the documents needed for proving zero rate by the supplier for supplies of goods or services with place of execution on the territory of the country. The amendment was with a view to more comprehensive and accurate application of the Agreement for Implementation of the Protocol on the Privileges and Immunities of the European Communities in the Republic of Bulgaria.

Registration and deregistration

Provisions were introduced concerning mandatory registration and deregistration of persons supplying or receiving services in compliance with the requirements of the Directive as well as transitional provisions with regard to advance payments effected.

A new requirement was created in the registration procedure – to declare an electronic correspondence address with the administration.

An amendment was made to eliminate problems arisen in practice during deregistration of persons, according to which when the person is deregistered and registers again voluntarily within the same taxable time period, only one Tax Return Form shall be submitted for the period.

The regime of specific cases of registration with an accredited representative was changed and new provisions were adopted, regulating the cases where registration shall be performed in accordance with the generally established procedure and the cases where registration may also be performed without an accredited representative being defined.

Measures against tax frauds

Provisions were adopted where the person registering in conformity with the law should declare an electronic correspondence address with the revenue administration. These amendments are directed at limiting the possibilities to extend the proceedings under the law, aiming to save time and resources of the administration without limiting the rights of diligent taxable persons.

Amendments were made to allow the revenue authorities to reject or terminate registration under the law to persons who have public liabilities collected by the National Revenue Agency. Until now the measure was applied solely with regard to tax liabilities. With the amendment made the revenue authority will be in a position to reject or terminate registration also in case the obligation for depositing mandatory social security contributions is not complied with. Another amendment was also made concerning the right of choice of the revenue administration – “to be in a position to reject” registration or termination of registration in special cases. The new revision shall not provide the persons with the possibility to deliberately place themselves beyond the scope of the Value Added Tax Act and in practice to perform taxable supplies without accruing tax for them.

Documenting the supplies, declaring and reporting

The persons registered on the grounds of Art. 97а shall not be entitled to indicate the tax in the invoices they issue;

The mandatory requisites “name and surname of the compiler” in the invoice have been repealed;

The Protocol pursuant to Art. 117 shall mandatorily contain both the grounds for accrual and the grounds for non-accrual of the tax;

The persons performing supplies of services under Art. 21, Para. 2 with place of provision on the territory of another Member State shall be added to the persons required to submit a VIES declaration (Recapitulative Statement) along with the Tax Return Form.

Provisions were adopted in connection with the measures against the grey economy with regard to the provision of remote connection between the National Revenue Agency and the fiscal cash register devices used by the persons.

Offset, deduction and reimbursement of a result for the time period – tax for refunding.

With the amendments adopted, the deduction related procedure as of 01.01.2010 is bimonthly and the term for refunding the tax by the revenue administration was shortened – from a 45- to a 30-day one.

Compulsory administrative measures and administrative penal provisions.

Amendments made in imposition of sanctions by the administration as follows:

The infringements and respectively the sanctions were distinguished for persons who do not issue a fiscal cash receipt note and for a person who violates the procedure and the manner for approval of the type, registration or putting into/out of operation, or reporting, or maintenance of the fiscal devices or persons who do not establish a remote connection with the National Revenue Agency

The enforcement administrative measure – placement of an object under seal for a term of up to one month shall also be applied with regard to persons who do not observe the procedure and the manner for submission of data along a remote connection with the National Revenue Agency

A provision is added for offenders within the meaning of Art. 186 stating that in case of repeated infringement the unsealing of an object shall not be performed within the framework of one month regardless of the fact that the penalty or the property sanction has been paid in full.

The amendments and supplements made to the Value Added Tax Act concern the need of harmonizing the Bulgarian tax legislation with the requirements of the European Directives and decisions of the Court of Justice of the European Communities in the sphere of the indirect taxation as well as clarifying texts, which create problems during the practical implementation of the Act.

The amendments relate to the requirements of Council Directive 2008/8/EC of 12 February 2008 amending Directive 2006/112/EC as regards the place of supply of services and Council Directive 2008/117/ЕC of 16 December 2008 amending Directive 2006/112/EC on the common system of value added tax to combat tax evasion connected with intra-Community transactions.

Supplies of services

The main rules applicable to the determination of the place of supply of services are amended by Council Directive 2008/8/ЕC. The main rule is that the place of supply of services should be based at the place where the supplier is established. With the adoption of the new amendments the place of supply of services shall depend on the statute of the client, i.e. when the services are rendered to a taxable person acting as such, the place of supply of such services is the place where the recipient has established their economic activities. When the services are supplied to a non-taxable person, the old rule is retained – the place of supply of services is the place where the supplier has established their economic activities. The principle of the place of taxation being where the factual consumption is performed is retained for a part of the supply of services. Such, for instance, are the supplies of services related to immovable property, with regard to passenger transportation and so forth.

A new concept “service for short-term hiring of means of transport” is introduced. The place of provision in this case is the place where the means of transport is actually put at the disposal of the customer. When the criterion “short-term hiring” is infringed, the general rules shall be applied and the place of execution shall be determined by the statute of the recipient of the service.

Exempt supplies

Amendments were made in the scope of the exempt supplies – the procedural representation, by which the right of defense of individuals in pre-court, court, administrative and arbitration proceedings is implemented, has been excluded from the exempt supplies.

Supplies related to international transport

The provision of Art. 31, which regulates the application of zero rate related to international transportation, was amended – it shall be applied solely in relation to vessels in high seas and to aircrafts used by aviation operators providing predominantly international services.

Taxation of imports

In conformity with the amendments made, goods shall be exempted from tax in case of imports within the framework of the permitted duty free import when the following is observed:

Goods are imported at the total value not exceeding 30 BGN;

Small consignments of goods of non-commercial nature are received, sent by an individual from a third country or territory to another individual in the country without the latter paying for them at a total value not exceeding the equivalent of 45 EUR in Bulgarian currency.

To be continued…

Basel II and various Supervisory bodies of the countries have prescribed various soundness standards for Operational Risk Management for Banks and similar Financial Institutions. To complement these standards, Basel II has given guidance to 3 broad methods of Capital calculation for Operational Risk.

5.1. Basic Indicator Approach – based on annual revenue of the Financial Institution.

The basic approach or basic indicator 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. Basic indicator approach is much simpler compared to the alternative approaches (i.e. standardized approach (operational risk) and advanced measurement approach) and this has been recommended for banks without significant international operations. Based on the original Basel Accord, banks using the basic indicator approach must hold capital for operational risk equal to the average over the previous three years of a fixed percentage of positive annual gross income. Figures for any year in which annual gross income is negative or zero should be excluded from both the numerator and denominator when calculating the average.

5.2. Standardised Approach – based on annual revenue of each of the broad business lines of the Financial Institution.

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. Standardized approach falls between basic indicator approach and advanced measurement approach in terms of degree of complexity. Based on the original Basel Accord, under the Standardised Approach, banks’ activities are divided into eight business lines: corporate finance, trading & sales, retail banking, commercial banking, payment & settlement, agency services, asset management, and retail brokerage. Within each business line, gross income is a broad indicator that serves as a proxy for the scale of business operations and thus the likely scale of operational risk exposure within each of these business lines. The capital charge for each business line is calculated by multiplying gross income by a factor (denoted beta) assigned to that business line. Beta serves as a proxy for the industry-wide relationship between the operational risk loss experience for a given business line and the aggregate level of gross income for that business line.

The total capital charge is calculated as the three-year average of the simple summation of the regulatory capital charges across each of the business lines in each year. 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:

Its board of directors and senior management, as appropriate, are actively involved in the oversight of the operational risk management framework;

It has an operational risk management system that is conceptually sound and is implemented with integrity; and

It has sufficient resources in the use of the approach in the major business lines as well as the control and audit areas.

5.3. Advanced Measurement Approaches – based on the internally developed risk measurement framework of the bank adhering to the standards prescribed (methods include IMA, LDA, Scenario-based, Scorecard etc.)

The advanced measurement approach (AMA) is a set of operational risk measurement techniques proposed under Basel II capital adequacy rules for banking institutions. Under this approach the banks are allowed to develop their own empirical model to quantify required capital for operational risk. Banks can use this approach only subject to approval from their local regulators.

Also, according to section 664 of original Basel Accord, In order to qualify for use of the AMA a bank must satisfy its supervisor that, at a minimum:

Its board of directors and senior management, as appropriate, are actively involved in the oversight of the operational risk management framework;

It has an operational risk management system that is conceptually sound and is implemented with integrity; and

It has sufficient resources in the use of the approach in the major business lines as well as the control and audit areas.

The Operational Risk Management framework should include identification, measurement, monitoring, reporting, control and mitigation frameworks for Operational Risk.