OSFI decided to maintain the Domestic Stability Buffer (DSB) for banks at 1% of the total risk-weighted assets. The buffer remains unchanged from the level set in March 2020 and maintained in June 2020, as part of the response of OSFI to the COVID-19 crisis. OSFI also published the departmental results report for 2019-2020, outlining the key developments in regulation and supervision of banks and insurers. During 2019-20, OSFI led a number of initiatives to respond to financial and non-financial risks in the areas of regulatory capital, accounting and insurance (including IFRS 17), governance, and crisis management. OSFI also introduced a number of measures in response to the COVID-19 pandemic.
The results report mentions that OSFI introduced flexibility through capital treatment adjustments for Canadian financial institutions that introduced payment deferral programs as a result of the COVID-19 crisis. OSFI supported access of banks to the Bank of Canada funding support by increasing the covered bond limit to 10% from 5.5% of bank assets for a one-year period. To reduce burden on regulated institutions, OSFI suspended all of its consultations and policy development on new or revised guidance to allow institutions to prioritize operational resilience until conditions stabilized. During 2019-20, other measures taken by OSFI to support regime effectiveness included the following:
- Enhanced guidance to federally regulated financial institutions through the release of various guidelines including the guidelines on liquidity adequacy requirements, large exposure limits for domestic systemically important banks, liquidity principles, net stable funding ratio disclosure requirements, and interest rate risk management.
- Enhanced capabilities to address technology risks and culture and conduct risks.
- Implemented phase 1 of a new system for performing core supervisory activities designed to modernize supervisory technology of OSFI
During 2019-20, OSFI also consulted the industry on specific elements of its capital adequacy requirements and conducted domestic quantitative impact studies to assess the impact of certain changes (including for IFRS 17 on insurance contracts, Segregated Funds requirements, and the implementation of Basel III). OSFI improved the monitoring of models of domestic systemically important banks (D-SIBs) by developing an enterprise-wide model risk dashboard, enhanced the assessment of governance and oversight controls for regulatory capital models, and leveraged its approval approach for development of a broader model risk assessment framework. OSFI strengthened its Liquidity Adequacy Ratio guideline as it pertains to retail deposits that may be subject to sudden withdrawal in a stressed environment. OSFI also engaged industry stakeholders on future capital and liquidity requirements for small and medium-size deposit-taking institutions. It revised the liquidity risk management expectations to ensure they are current and relevant as well as appropriate for the scale and complexity of financial institutions.
In the area of accounting, OSFI consulted industry stakeholders on the BCBS Pillar 3/phase II and III disclosure requirements in advance of a draft guideline for public consultation. To ensure OSFI maintains effective supervision of federally regulated financial institutions following the implementation of IFRS 17, work advanced toward the development of an effective regulatory policy framework through the transition. While IASB eventually announced the deferral of the effective date of IFRS 17 to January 1, 2023, OSFI regularly communicated with, and engaged the industry on implications to accounting guidelines and capital frameworks caused by the standard. Additionally, OSFI deepened its assessment of the impact of climate-related risks on financial institutions and undertook supervisory practices benchmarking in this area. OSFI contributed to the climate risk initiatives by international bodies such as IAIS, BCBS, FSB, and the Sustainable Insurance Forum (SIF). As part of its technology risk work, OSFI promoted and shared best practices in cyber risk management with financial institutions.
Keywords: Americas, Canada, Banking, Insurance, COVID-19, Domestic Stability Buffer, Basel, IFRS 17, Climate Change Risk, ESG, Governance, Technology Risk, Regulatory Capital, Liquidity Risk, OSFI
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In a letter addressed to the industry, the Australian Prudential Regulation Authority (APRA) set out an updated schedule of policy priorities for the banking, insurance, and superannuation industries.
The European Commission (EC) adopted a comprehensive review package of Solvency II rules in the European Union.
The Office of the Comptroller of the Currency (OCC) issued Versions 1.0 of the "Earnings" and "Regulatory Reporting" booklets of the Comptroller's Handbook.
The European Central Bank (ECB) published results of its economy-wide climate stress test, which aimed to assess the resilience of non-financial corporates and euro area banks to climate risks.
The European Banking Authority (EBA) published a report on the use of digital platforms in the banking and payments sector in European Union.
The Hong Kong Monetary Authority (HKMA) published updates on the policy measures that were announced in context of the ongoing pandemic.
The International Swaps and Derivatives Association (ISDA), along with several other associations, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on preliminary proposals for the prudential treatment of cryptoasset exposures.
BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.
The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards
The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.