The Dubai Financial Services Authority (DFSA) has released Consultation Paper No. 164 proposing to implement the Basel III revised Standardised Approach for calculating operational risk risk-weighted assets (RWA) and to amend the Prudential – Investment, Insurance Intermediation and Banking (PIB) module accordingly for DIFC firms subject to the Basel regime. The proposals would replace current Basel II approaches with an RWA formula of 12.5 multiplied by a Business Indicator and a marginal coefficient. The Business Indicator would be calculated from three-year averages across interest, leases and dividends, services and financial components, with forward-looking estimates allowed for firms operating for less than three years. Marginal coefficients would apply on a step-up basis by Business Indicator size (12% up to USD 1 billion, 15% for USD 1–30 billion, and 18% above USD 30 billion), alongside new public disclosures of the Business Indicator inputs and operational risk capital charge under PIB APP11. The DFSA also proposes to neutralise the Basel III Internal Loss Multiplier by not implementing it and to align the operational risk definition with Basel III by explicitly including legal risk while excluding strategic and reputation risk from the Pillar 1 operational risk capital charge. Responses are due by 12 May 2025. Subject to the outcome of consultation and subsequent rulemaking, the DFSA proposes an implementation date of 1 July 2026 and will publish final Rulebook amendments after considering feedback.

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