Featured Product

    OSFI on Use of Standardized Approach for Operational Risk Capital

    December 20, 2021

    The Office of the Superintendent of Financial Institutions (OSFI) recently confirmed that the minimum qualifying rate for uninsured mortgages will remain the greater of the mortgage contract rate plus 2.00% or 5.25%. OSFI reviews and communicates the minimum qualifying rate at least every December. OSFI also issued a letter on the use of standardized approach for operational risk capital by Category 1 Small and Medium-Size Deposit-Taking Institutions (SMSBs). OSFI revised the Capital Adequacy Requirements (CAR) Guideline, of which the Chapter 3—Operational Risk—stipulates that the Category I SMSBs with Annual Adjusted Gross Income greater than $1.5 billion must use the Standardized Approach when determining their operational risk capital charge. Additionally, Category I SMSBs with Annual Adjusted Gross Income of less than $1.5 billion will, by default, use the Simplified Standardized Approach but may apply to OSFI for the use of the Standardized Approach if they have a minimum of five years of high-quality internal operational risk loss data.

    To support the implementation of the Standardized Approach, OSFI has developed data maintenance expectations and a related assessment tool for operational risk capital data used in the Standardized Approach. Operational risk data includes both internal operational risk loss data and the components of the Business Indicator that are used to calculate operational risk capital. The letter sets out the general application and assessment process that Category I SMSBs with less than $1.5 billion of Annual Adjusted Gross Income need to follow in seeking approval from OSFI to use the Standardized Approach. If approved, these institutions will have their Internal Loss Multiplier (ILM) floored at one until OSFI can confirm that the institution has 10 years of high-quality internal operational risk loss data. For a Category I SMSB with less than $1.5 billion of Annual Adjusted Gross Income and 10 years of internal loss data, OSFI may require the ILM to be adjusted (floored at one or greater than one) based on its assessment of the quality of the institution’s internal operational risk loss data. Starting from June 01, 2022,

    Category I SMSBs with five or more years of high-quality internal operational risk loss data may submit applications to OSFI for approval to use the Standardized Approach. Applications will be reviewed in the order in which they are received. All applications must include the following information:

    • Completed self-assessment against the Assessment Tool— Operational Risk Capital Data;
    • Completed form L3 providing details of internal loss data for each of the years available up to a maximum of 10 years (only at the consolidated level; line of business can be excluded);
    • Completed 2023 Basel Capital Adequacy Reporting (BCAR) schedule for operational risk capital for the most recent quarter using the Simplified Standardized Approach; and
    • Completed 2023 BCAR schedule for operational risk capital for the most recent quarter using the Standardized Approach

    The draft Operational Risk Capital Data Management Expectations and the related Assessment Tool were issued for public consultation in June 2021. OSFI expects to release the final version of these documents in early 2022, which should be used for the application. The consultation on the draft BCAR was issued in May 2021, with OSFI expecting to release the final version of BCAR in early 2022, which should be used for the application.

     

    Related Links

    Keywords: Americas, Canada, Banking, Basel, Regulatory Capital, Operational Risk, CAR Guideline, Standardized Approach, Simplified Standardized Approach, BCAR, SMSBs, Mortgage Lending, Credit Risk, Minimum Qualifying Rate, Uninsured Mortgages, OSFI

    Featured Experts
    Related Articles
    News

    EC Regulation Sets Out Methods for Measuring K-Factors Under IFR

    The European Commission (EC) published the Delegated Regulation 2022/25, which supplements the Investment Firms Regulation (IFR or Regulation 2019/2033) with respect to the regulatory technical standards specifying the methods for measuring the K-factors referred to in Article 15 of the IFR.

    January 11, 2022 WebPage Regulatory News
    News

    BIS Studies How Platform Models Impact Financial Stability & Inclusion

    The Bank of International Settlements (BIS) published a paper that assesses the ways in which platform-based business models can affect financial inclusion, competition, financial stability and consumer protection.

    January 10, 2022 WebPage Regulatory News
    News

    ESAs Publish List of Financial Conglomerates for 2021

    The European Supervisory Authorities (ESAs) published the list of identified financial conglomerates for 2021.

    January 07, 2022 WebPage Regulatory News
    News

    APRA Licenses Two More Banks, Reduces Committed Liquidity Facility

    The Australian Prudential Regulation Authority (APRA) granted license to Barclays Bank PLC and Crédit Agricole Corporate and Investment Bank to operate as foreign authorized deposit-taking institutions under the Banking Act 1959.

    January 06, 2022 WebPage Regulatory News
    News

    EU Issues SII Corrigendum; EIOPA Assesses SII Reporting Exemptions

    EU published, in the Official Journal of the European Union, a corrigendum to the Delegated Regulation 2015/35, which supplements Solvency II Directive (2009/138/EC).

    January 06, 2022 WebPage Regulatory News
    News

    EBA Opines on Impact of De-Risking and Associated AML/CFT Challenges

    The European Banking Authority (EBA) published an Opinion on the scale and impact of de-risking in European Union and the steps that competent authorities should take to tackle unwarranted de-risking.

    January 05, 2022 WebPage Regulatory News
    News

    French Financial Markets Authority Sets Out Priorities for 2022

    The French Financial Markets Authority (AMF) published its 2022 work priorities, along with the supervisory priorities for 2022.

    January 05, 2022 WebPage Regulatory News
    News

    US Agencies Issue Statement on Community Bank Leverage Ratio Framework

    The U.S. Department of the Treasury issued a determination on a request for an exemption, by RBC US Group Holdings LLC, from certain requirements of the rule implementing the qualified financial contracts (QFC) recordkeeping requirements under the Dodd-Frank Act.

    January 04, 2022 WebPage Regulatory News
    News

    FCA Informs About Changes to LIBOR Settings From End-2021

    The Financial Conduct Authority (FCA) announced that publication of 24 LIBOR settings has ended and that, going forward, the 6 most widely used sterling and Japanese yen settings will be published using a changed methodology.

    January 04, 2022 WebPage Regulatory News
    News

    PBC Sets Out Fintech Development Plan for 2022 to 2025

    The People’s Bank of China (PBC) formulated the recently issued Fintech Development Plan (2022 to 2025) under the Outline of the 14th Five-Year Plan (2021-2025) for National Economic and Social Development and the Long-Range Objectives through the Year 2035.

    January 04, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 7854