OSFI Issues Draft Guideline on Assurance Expectations for Bank Returns
OSFI issued the draft guideline that set out assurance expectations for capital, leverage, and liquidity returns, with the comment period ending on May 31, 2022 and the guidelines expected to be finalized in the second half of 2022.
The draft guideline seeks to better inform auditors and institutions on the work to be performed to enhance and align assurance expectations over key regulatory returns that contribute to the OSFI assessment of the safety and soundness of institutions across all federally regulated financial institutions. The assurance expectations apply to the capital returns of all federally regulated financial institutions; these include the capital, leverage, and liquidity returns of all federally regulated deposit-taking institutions. The returns in scope for domestic systemically important banks (D-SIBs) and small and medium-size deposit-taking institutions (SMSBs) include the Basel Capital Adequacy Return (BCAR), Leverage Requirements Return (LRR), Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR), Net Cumulative Cash Flow (NCCF), and the Operating Cash Flow Statement (OCFS) returns.
Capital, leverage, and liquidity are all important measures of financial safety and soundness in the deposit-taking institution industry. As such, external auditors should opine on whether the material risk components in the numerator and denominator of key capital, leverage, and liquidity ratios are free from material misstatements, including whether regulatory capital model implementation is consistent with the OSFI-approved models. These expectations apply to the key regulatory returns filed by domestic systemically important banks (D-SIBs) on a consolidated basis as well as for wholly-owned subsidiaries. OSFI expects external auditors to evaluate and opine on whether the material risk components in the numerator and denominator of the ratios listed on Schedule 10.010 of the BCAR, the Leverage and Total Loss Absorbing Capacity (TLAC) Leverage Ratios schedule of the LRR, and the LCR and NSFR returns at the year-end reporting date have been prepared in accordance with the appropriate regulatory frameworks and are free of material misstatements. The external audit assurance requirements for D-SIBs commence in fiscal 2024. External auditors are expected to provide their opinion to the OSFI lead supervisor annually within 90 days of the fiscal year-end.
OSFI recognizes that there may be operational complexities in applying the external audit assurance requirements at the subsidiary level for SMSBs due to the size and nature of their business activities. Therefore, SMSBs may apply the enhanced assurance requirements at the consolidated level. Wholly-owned subsidiaries of SMSBs are exempt from these requirements. The external audit assurance requirements for SMSBs’ capital, leverage, and liquidity returns commence in fiscal 2024. External auditors of SMSBs are expected to provide their opinion to the OSFI lead supervisor annually within 90 days of the fiscal year-end. External auditors for Category II SMSBs may stagger submission of their opinions biennially beginning with the capital ratios in fiscal 2024, followed by the liquidity ratios in fiscal 2025. External auditors of Category III SMSBs may provide their audit opinion biennially.
Related Links
Comment Due Date: May 31, 2022
Keywords: Americas, Canada, Banking, Reporting, Proportionality, Internal Control, External Audit, Compliance Risk, Regulatory Capital, Liquidity Risk, Leverage Ratio, Basel, 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
APRA Seeks Views on Data Collection Roadmap for Regulated EntitiesRelated Articles
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.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.