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    OSFI Issues Guidance on Capital & Liquidity Treatment of Cryptoassets

    The Office of the Superintendent of Financial Institutions (OSFI) extended the comment period for the revised guidelines on third-party risk and climate risk management (Guidelines B-10 and B-15, respectively) until September 30, 2022 (from July 27, 2022 and August 19, 2022, respectively). OSFI will confirm the planned publication schedules of these final guidelines at a later date. OSFI also published an advisory on the interim arrangements for the regulatory capital and liquidity treatment of cryptoasset exposures.

    The advisory on cryptoasset exposures aims to ensure that federally regulated financial institutions apply a conservative treatment and set prudent limits in relation to their cryptoasset exposures. The advisory applies to all federally regulated financial institutions and complements the following OSFI guidelines: Capital Adequacy Requirements (CAR), Leverage Requirements (LR), Liquidity Adequacy Requirements (LAR), Foreign Bank Branch Deposit Requirement (A-10), Life Insurance Capital Adequacy Test (LICAT), Minimum Capital Test (MCT), and Mortgage Insurer Capital Adequacy Test (MICAT). The advisory defines and categorizes cryptoasset exposures as well as outlines the deposit-taking institution credit risk, counterparty credit risk, leverage, market risk, liquidity risk, and the foreign bank branch deposit treatments. The capital requirements for insurer cryptoasset exposures are also clarified, in addition to defining the exposure limits for all federally regulated financial institutions.

    This advisory sets out the OSFI expectations about when federally regulated financial institutions should notify their lead supervisor if they intend to have exposures to cryptoassets. Where a federally regulated financial institution intends to engage (directly or via a subsidiary) in other cryptoasset activities, the OSFI expectation is that the federally regulated financial institution will notify its lead supervisor and provide any information requested by OSFI, allowing OSFI to assess the safety and soundness as well as risk implications of such activities. The advisory builds on the consultative letter OSFI provided in July 2021 and outlines the expectation that any currently-held cryptoassets should be managed prudently. The advisory also sets limits on the use  of cryptoassets by banks and insurers. It also provides further guidance on how to approach the capital and liquidity treatment of cryptoasset holdings. OSFI will update this interim approach as needed to reflect developments, including the government’s legislative review of the digitalization of money, responses to OSFI’s consultation questions, the Basel Committee on Banking Supervision’s final guidance on cryptoasset exposures, and any related developments in the cryptoasset market, as required.

     

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    Keywords: Americas, Canada, Banking, Securities, Cryptoassets, Regtech, Regulatory Capital, Climate Change Risk, ESG, Disclosures, TCFD, Basel, Cloud Computing, OSFI

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