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    OSFI Issues Letter on ICAAP Submission and Internal Audit of BCAR

    April 12, 2021

    OSFI issued a letter to confirm that a formal Internal Capital Adequacy Assessment Process (ICAAP) submission is not required in 2021. The letter also stated that internal audit of the 2021 Basel Capital Adequacy Reporting (BCAR) return must be submitted by February 28, 2022. OSFI expects the Internal Audit function of each institution to provide a review of the completeness and accuracy of one BCAR submission during the year including, but not limited to, a review of the accurate categorization of risk-weighted assets, completeness of off-balance sheet amounts, and accurate amounts for credit risk mitigation. The letter has been issued to deposit-taking institutions using the Basel standardized approach to credit risk.

    While formal ICAAP submission is not required in 2021, OSFI expects that standardized deposit-taking institutions will continue to practice prudent capital management. This includes the continued implementation of their ICAAP program to identify, quantify, and substantiate to their boards the Pillar 2 risks that underpin their target capital levels. OSFI recognizes that increased risks have emerged due to the pandemic and believes that a robust ICAAP enhances  the ability of a standardized deposit-taking institution to manage through the current environment and all stages of business cycles. Therefore, OSFI expects standardized deposit-taking institutions to update their ICAAP as part of the annual capital planning process. This should include reconfirmation of internal capital targets. Lead supervisors may request ICAAP documentation as part of the ongoing supervisory review process of OSFI. The OSFI guideline on ICAAP and enterprise-wide model risk management provides further details on the requirement to institute an ICAAP process, including robust model governance for Pillar 2 risk quantification.

     

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    Keywords: Americas, Canada, Banking, Basel, ICAAP, BCAR, Regulatory Capital, Reporting, Standardized Approach, Credit Risk, Pillar 2, OSFI

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