The basic framework of the AMA quantification model of  SMFG and SMBC is outlined in the diagram below. Among  the four elements, collected internal loss data and the results of  scenarios analysis through risk control assessment are input  directly into the quantification model described later in this sec- tion to calculate required capital and risk-weighted assets  (= required capital divided by 8%). In addition, external loss data  and BEICFs are used in verifying the assessment of scenarios,  along with internal loss data, to increase objectivity, accuracy, and  completeness. are discussed. In this way, we realize a highly effective operational  risk management framework. The operational risk situation is also  reported to the Management Committee and the Board of Directors  on a regular basis, for review of the basic policies on operational  risk management. Moreover, the bank’s independent Internal Audit  Department conducts periodic audits to ensure that the operational  risk management system is functioning properly. The specific content, method of collection and use of the four  elements are described below. In each group company the same  four elements are collected and utilized. As previously defined, operational risk covers a wide range of  events, including the risk of losses due to errors in operation, sys- tem failures, and natural disasters. Also, operational risk events  can occur virtually anywhere and everywhere. Thus, it is essential  to check whether material operational risks have been overlooked,  monitor the overall status of risks, and manage/control them. To this  end, it is necessary to be able to quantify risks using a measure- ment methodology that can be applied to all types of operational  risk, and to comprehensively and comparatively capture the status  of and changes in potential operational risks of business processes.  Also, from the viewpoint of internal control, the measurement meth- odology used to create a risk mitigation plan must be such that the  implementation of the plan quantitatively reduces operational risk. SMFG and SMBC have received an approval from Japan’s  Financial Services Agency for the application of the Advanced  Measurement Approach (AMA), which is the most sophisticated  measurement method out of the three cited methods under Basel  II for measurement of operational risk. SMFG and SMBC have  adopted the AMA for operational risk management and for calculat- ing operational risk-weighted assets. It has been used for calculating  the capital adequacy ratio since March 31, 2008. When using the AMA, regulations require that the internal  measurement system (hereinafter, the “quantification model”) must  use four data elements (hereinafter, the “four elements”): namely,  internal loss data, external loss data, Business Environment and  Internal Control Factors (BEICFs), and scenarios analysis through  risk control assessments. In addition, the operational risk equivalent  amount (hereinafter, “required capital”) calculated under the AMA  must cover the maximum loss comparable to a one-year holding  period and a 99.9 percentile confidence interval. SMFG  2011 43 3. Operational Risk Management Methodology ■  Basic Framework of Operational Risk Measurement  of SMFG and SMBC (6) Risk Mitigation Initiatives (1) Internal Loss Data (2) External Loss Data (3) BEICFs Verifi- cation Data input (4)  Scenario  Analysis through  Risk Control  Assessments (5)  Measurement  Using the  Quantification  Model