OSFI Proposes to Enhance Assurance Expectations for Basel Returns
OSFI launched a consultation to explore ways to enhance the OSFI assurance over capital, leverage, and liquidity returns for banks and insurers, given the increasing complexity arising from the evolving regulatory reporting framework due to IFRS 17 (Insurance Contracts) standard and Basel III reforms. The aim is to engage stakeholders, including the federally regulated financial institutions, in a dialog with OSFI, to proactively enhance and align assurance expectations over key regulatory returns that contribute to the OSFI assessment of the safety and soundness of institutions. The comment period for this consultation ends on June 18, 2021, with a draft guideline expected to be published for consultation by Fall 2021. OSFI is proposing for the enhanced assurance expectations be effective by fiscal 2023 for deposit-taking institutions and by fiscal 2022 for federally regulated insurers.
At present, OSFI has a range of assurance expectations for capital, leverage, and liquidity returns. For deposit-taking institutions using the internal ratings-based approach for credit risk, senior management submits an annual attestation for compliance with minimum regulatory requirements for regulatory capital models and an internal audit opinion is submitted for approved regulatory capital models. For deposit-takers using the standardized approach for credit risk, the internal audit function also performs a periodic review of the Basel Capital Adequacy Return (BCAR) that is submitted to the Lead Supervisors of OSFI. OSFI now also proposes to have the assurance expectations apply to the capital, leverage and liquidity returns of all federally regulated deposit-taking institutions.
The regulatory returns in scope for domestic systemically important banks (D-SIBs) and small and medium-size deposit-taking institutions (SMSBs) include the BCAR, Leverage Requirements Return (LRR), and liquidity returns for the Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR), Net Cumulative Cash Flow (NCCF), and the Operating Cash Flow Statement (OCFS). Consistent with the proposed SMSBs’ Capital and Liquidity Requirements, the assurance expectations for SMSBs do not apply to foreign bank branches. The associated guidelines include the Capital Adequacy Requirements (CAR), Leverage Requirements (LR), Total Loss Absorbing Capacity (TLAC), and Liquidity Adequacy Requirements (LAR). The OSFI initiative to advance proportionality in the capital and liquidity regime for SMSBs includes proposed changes to the SMSB Pillar 1 capital and liquidity frameworks. Therefore, OSFI is proposing that the assurance expectations complement the proportionality initiative to reflect the size, nature, complexity, and business activities of SMSBs.
Moreover, certain external audit requirements exist in most insurance guidelines but not in the CAR, LR, TLAC, and LAR guidelines for federally regulated deposit-taking institutions; however, senior management submits an annual attestation for compliance with minimum regulatory requirements for regulatory capital models and internal audit performs a periodic review of the BCAR. Therefore, OSFI proposes to better align external audit requirements between the insurance and deposit-taking industries. OSFI also proposes to require an annual internal audit opinion on the accuracy and completeness of key regulatory returns, which includes a conclusion on the effectiveness of internal controls. The internal audit may be completed at any time during the fiscal year. The proposals in this area aim to reduce misstatements on the regulatory returns by relying on the third line of defense to enhance governance and controls.
Related Links
Comment Due Date: June 18, 2021
Keywords: Americas, Canada, Banking, Basel III, Internal Audit, Materiality, Reporting, Proportionality, Internal Control, External Audit, Compliance Risk, Regulatory Capital, Liquidity Risk, Leverage Ratio, OSFI
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
OSFI Consults on Minimum Qualifying Rate for Uninsured MortgagesRelated Articles
OSFI Issues Phase2 Consultation on Climate Scenario Exercise for Banks
The Office of the Superintendent of Financial Institutions (OSFI) recently announced a consultation on the second phase of the Standardized Climate Scenario Exercise (SCSE) for banks and other financial institutions it regulates in Canada.
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
