OSFI announced the unwinding of regulatory adjustments to the market risk capital requirements for banks, effective May 01, 2021. The level of Stressed Value-at-Risk (SVaR) multipliers applied by banks will be returned to the pre-pandemic levels now that the financial markets have stabilized. For institutions with a fiscal year-end in October, this means reverting to the SVaR multiplier that was in place on January 31, 2020. For institutions with a fiscal year-end in December, this means reverting to the SVaR multiplier that was in place on December 31, 2019. In this context, OSFI also updated the frequently asked questions (FAQs) on COVID-19 measures for federally regulated financial institutions.
The current change aligns with the OSFI assessment of SVaR multiplier adjustment against the four criteria for regulatory and supervisory adjustments—that is, the adjustment would need to remain credible, consistent, necessary, and fit-for-purpose. In the backdrop of pandemic, in the March 27, 2020 letter, OSFI had announced that, on a temporary basis, institutions subject to market risk capital requirements and using internal models may reduce the SVaR multiplier they use by two. This meant that the SVaR multipliers would temporarily not be subject to a minimum value of three as prescribed in Chapter 9 of the Capital Adequacy Requirements Guideline of OSFI. SVaR multiplier is a component of the market risk capital requirements that ensures that a minimum amount of capital is held against stress period, with a reduced multiplier implying a lower capital requirement.
Keywords: Americas, Canada, Banking, Market Risk, COVID-19, Regulatory Capital, Stressed Value at Risk, SVAR, CAR Guidance, Basel, FAQ, OSFI
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.
The European Insurance and Occupational Pensions Authority (EIOPA) proposed to amend the supervisory statement on supervision of run-off undertakings that are subject to Solvency II regulation.
The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.
The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.