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Appendix A Loss Event Type Classification

Appendix A

Event-Type Category (Level 1) Definition Categories (Level 2) Activity Examples (Level 3)
Internal Fraud Losses due to acts of a type intended to defraud, misappropriate property or circumvent regulations, the law or company policy, excluding diversity/discrimination events, which involves at least one internal party. Unauthorised Activity
•   Transactions not reported (intentional)
•   Transaction type unauthorised (w/monetary loss)
•   Mismarking of position (intentional)
Theft and Fraud
•   Fraud/credit fraud/worthless deposits
•   Theft/extortion/embezzlement/robbery
•   Misappropriation of assets
•   Malicious destruction of assets, forgery, check kiting and smuggling
•   Account take-over/impersonation/etc.
•   Tax non-compliance/evasion (wilful)
•   Bribes/kickbacks
•   Insider trading (not on firm's account)
External fraud Losses due to acts of a type intended to defraud, misappropriate property or circumvent the law, by a third party. Theft and Fraud
•   Theft/robbery
•   Forgery and check kiting
Systems Security
•   Hacking damage
•   Theft of information (w/monetary loss)
Employment Practices and Workplace Safety Losses arising from acts inconsistent with employment, health or safety laws or agreements, from payment of personal injury claims, or from diversity/discrimination events. Employee Relations
•   Compensation, benefit, termination issues
•   Organised labour activity
Safe Environment
•   General liability (slip and fall, etc.)
•   Employee health & safety rules events
•   Workers compensation
Diversity and Discrimination
•   All discrimination types
Clients, Products and Business Practices Losses arising from an unintentional or negligent failure to meet a professional obligation to specific clients (including fiduciary and suitability requirements), or from the nature or design of a product. Suitability, Disclosure and Fiduciary
•   Fiduciary breaches/guideline violations
•   Suitability/disclosure issues (KYC, etc.)
•   Retail customer disclosure violations
•   Breach of privacy
•   Aggressive sales
•   Account churning
•   Misuse of confidential information
•   Lender liability
    Improper Business or Market Practices
•   Antitrust
•   Improper trade/market practices
•   Market manipulation
•   Insider trading (on firm's account)
•   Unlicensed activity
•   Money laundering
Product Flaws
•   Product defects (unauthorised, etc.)
•   Model errors
Selection, Sponsorship and Exposure
•   Failure to investigate client per guidelines
•   Exceeding client exposure limits
Advisory Activities
•   Disputes over performance of advisory activities
Damage to Physical Assets Losses arising from loss or damage to physical assets from natural disaster or other events. Disasters and other events
•   Natural disaster losses
•   Human losses from external sources (terrorism, vandalism)
Business disruption and system failures Losses arising from disruption of business or system failures. Systems
•   Hardware
•   Software
•   Telecommunications
•   Utility outage/disruptions
Execution, Delivery and Process Management Losses from failed transaction processing or process management, from relations with trade counterparties and vendors. Transaction Capture, Execution and Maintenance
•   Miscommunication
•   Data entry, maintenance or loading error
•   Missed deadline or responsibility
•   Model/system misoperation
•   Accounting error/entity attribution error
•   Other task misperformance
•   Delivery failure
•   Collateral management failure
•   Reference data Maintenance
Monitoring and Reporting
•   Failed mandatory reporting obligation
•   Inaccurate external report (loss incurred)
Customer Intake and Documentation
•   Client permissions/disclaimers missing
•   Legal documents missing/incomplete
Customer/Client Account Management
•   Unapproved access given to accounts
•   Incorrect client records (loss incurred)
•   Negligent loss or damage of client assets
Trade Counterparties
•   Non-client counterparty misperformance
•   Misc. non-client counterparty disputes
Vendors and suppliers
•   Outsourcing
•   Vendor disputes

Appendix B

Set out below are examples of Shariah requirements that are to be complied with by the banks in respect of the financing contracts. The list is for guidance purposes and not conclusive and may vary according to the views of the various Shariah Supervisory Board (SSB):

(a) Murabahah and Ijarah contracts
•   The asset is in existence at the time of sale or lease or, in case of Ijarah, the lease contract should be preceded by acquisition of the usufruct of the asset except if the asset was agreed upon based on a general specification.
•   The asset is legally owned by the bank when it is offered for sale.
•   The asset is intended to be used by the buyer/lessee for activities or businesses permissible by Shariah; if the asset is leased back to its owner in the first lease period, it should not lead to contract of 'inah, by varying the rent or the duration.
•   There is no late payment, penalty fee or increase in price in exchange for extending or rescheduling the date of payment of accounts receivable or lease receivable, irrespective of whether the debtor is solvent or insolvent.
(b) Salam and Istisna' contracts
•   A sale and purchase contract cannot be inter-dependent and inter-conditional on each other, such as Salam and Parallel Salam; Istisna' and Parallel Istisna'.
•   It is not allowed to stipulate a penalty clause in respect of delay in delivery of a commodity that is purchased under Salam contract, however it is allowed under Istisna' or Parallel Istisna'.
•   The subject-matter of an Istisna' contract may not physically exist upon entering into the contract.
(c) Musharakah and Mudarabah contracts
•   The capital of the bank is to be invested in Shariah compliant investments or business activities.
•   A partner in Musharakah cannot guarantee the capital of another partner or a Midrib guarantees the capital of the Mudarabah.
•   The purchase price of other partner's share in a Musharakah with a binding promise to purchase can only be set as per the market value or as per the agreement at the date of buying. It is not permissible, however, to stipulate that the share be acquired at its face value.
Added: January 2020