OSFI issued a letter to confirm that a formal Internal Capital Adequacy Assessment Process (ICAAP) submission is not required in 2021. The letter also stated that internal audit of the 2021 Basel Capital Adequacy Reporting (BCAR) return must be submitted by February 28, 2022. OSFI expects the Internal Audit function of each institution to provide a review of the completeness and accuracy of one BCAR submission during the year including, but not limited to, a review of the accurate categorization of risk-weighted assets, completeness of off-balance sheet amounts, and accurate amounts for credit risk mitigation. The letter has been issued to deposit-taking institutions using the Basel standardized approach to credit risk.
While formal ICAAP submission is not required in 2021, OSFI expects that standardized deposit-taking institutions will continue to practice prudent capital management. This includes the continued implementation of their ICAAP program to identify, quantify, and substantiate to their boards the Pillar 2 risks that underpin their target capital levels. OSFI recognizes that increased risks have emerged due to the pandemic and believes that a robust ICAAP enhances the ability of a standardized deposit-taking institution to manage through the current environment and all stages of business cycles. Therefore, OSFI expects standardized deposit-taking institutions to update their ICAAP as part of the annual capital planning process. This should include reconfirmation of internal capital targets. Lead supervisors may request ICAAP documentation as part of the ongoing supervisory review process of OSFI. The OSFI guideline on ICAAP and enterprise-wide model risk management provides further details on the requirement to institute an ICAAP process, including robust model governance for Pillar 2 risk quantification.
- BCAR Manual and Related Documents
- ICAAP Guidelines
- Guidelines on Enterprise-Wide Model Risk Management
Keywords: Americas, Canada, Banking, Basel, ICAAP, BCAR, Regulatory Capital, Reporting, Standardized Approach, Credit Risk, Pillar 2, OSFI
Previous ArticleFSB Publishes FAQs on Implementation of SFT Data Standards
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).
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.
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.
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.
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.
As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.
A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.
The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards
The Swiss Federal Council recently decided to further develop the Swiss Climate Scores, which it had first launched in June 2022.