Advanced Measurement Approach

What is Advanced Measurement Approach?

The Advanced Measurement Approach (AMA) is a mechanism for banks to assess and capitalize on their operational risk and is considered a model-based approach. That is a method for gathering information about the bank to self-estimate its anticipated range of operational losses and help set aside adequate capital.

Using an AMA requires implementing various risk management processes, subprojects and measurement components that support good, accurate risk measurement, management and reporting.

Various risk measurement tools and supporting projects had to be put in place to implement AMA. Fundamental AMA tools include internal loss data, external loss data, risk scenarios and business environment and internal control factors, addressed through risk and control self-assessments and key risk indicators.

Why is AMA important?

The beneficial influence on reputation and perception by stakeholders is one of the most evident outcomes of using an advanced approach to operational risk management. More sophisticated and advanced risk management conveys a clear message of robust and effective risk management to shareholders, clients, rating agencies, and the market. This reassurance is critical and provides comfort to stakeholders, particularly during times of economic turmoil and uncertainty.