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    OSFI Sets D-SIB Buffer, Issues Update on Operational Resilience

    December 15, 2022

    The Office of the Superintendent of Financial Institutions (OSFI) recently set the Domestic Stability Buffer (DSB) for banks at 3%, with effective date of February 01, 2023, and announced that the minimum qualifying rate (MQR) for uninsured mortgages will remain the greater of the mortgage contract rate plus 2% or 5.25%. In addition to confirming the MQR level, OSFI plans to launch a consultation, in January 2023, on Guideline B-20 on residential mortgage underwriting practices and procedures. The announcements on DSB and MQR were also addressed in a statement from the OSFI Superintendent of Financial Institutions. Additionally, OSFI issued a letter to the federally regulated financial institutions clarifying the key definitions on operational resilience.

    In the letter, OSFI has set out definitions on key terms such as operational risk, operational resilience, critical operations, tolerance for disruption, and scenario testing. The federally regulated financial institutions can use these definitions until the revised Guideline E-21 comes in effect. OSFI expects to publish the draft revised guidance for consultation in Spring 2023. OSFI had conducted, in July 2021, a consultation on ways to position operational risk and resilience within its principles-based guidance framework. Based on the feedback to this July 2021 consultation, OSFI is proposing to revise Guideline E-21 to shift the focus of the guideline toward operational resilience, while continuing to reinforce its expectations in relation to operational risk management. According to OSFI, achieving operational resilience involves:

    • identifying critical operations and mapping the internal and external dependencies (on people, systems, processes, third parties, facilities, and so on) required to support critical operations.
    • establishing tolerances for disruption in respect of each critical operation of the financial institution.
    • conducting scenario testing to gauge the ability of the institution to operate within its limits or tolerances for disruption in a range of severe but plausible scenarios.
    • identifying and addressing risks to the ability of the institution to operate within its limits or tolerances for disruption as part of both mapping and scenario testing.

     

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    Keywords: Americas, Canada, Banking, Basel, Regulatory Capital, D-SIBs, Domestic Stability Buffer, Mortgage Lending, Lending, Minimum Qualifying Rate, Guideline B-20, Operational Resilience, Guideline E-21, Operational Risk, OSFI

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