October 23, 2018

OSFI announced that the deposit-taking institutions using the Basel standardized approach to credit risk will not be required to submit a formal Internal Capital Adequacy Assessment Process (ICAAP) for 2019. However, the deposit-taking institutions should continue implementing and updating their ICAAP programs to identify, quantify, and substantiate to their boards the Pillar 2 risks that underpin their target capital levels. Regarding internal audit review of the 2019 Basel Capital Adequacy Reporting (BCAR) return, the deposit-taking institutions must submit their audit reports by February 29, 2020.

Standardized deposit-taking institutions should treat the ICAAP as an important internal process rather than as a “regulatory” exercise. OSFI believes that a robust ICAAP enhances a standardized deposit-taking institution's ability to manage through all stages of business cycles. Therefore, OSFI expects standardized deposit-taking institutions to update their ICAAP as part of their annual capital planning process. This should include re-confirmation of internal capital targets. Lead Supervisors may request ICAAP documentation as part of the ongoing supervisory review process of OSFI. OSFI guidelines E-19 Internal Capital Adequacy Assessment Program and E-23 Enterprise-Wide Model Risk Management provide further detail on the requirement to institute an ICAAP process, including robust model governance for Pillar 2 risk quantification.

Furthermore, the next set of internal audits of the 2019 BCAR return must be submitted to OSFI by February 29, 2020. As with the previous practice, OSFI expects each institution’s Internal Audit function to provide their OSFI Lead Supervisor with a review of the completeness and accuracy of one BCAR submission during the year including, but not limited to, a review of the following:

  • Accurate categorization of risk-weighted assets
  • Completeness of Off-Balance Sheet amounts
  • Accurate amounts for credit risk mitigation


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Keywords: Americas, Canada, Banking, ICAAP, BCAR, Pillar 2, Stress Testing, OSFI

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