The Office of the Superintendent of Financial Institutions (OSFI) recently confirmed that the minimum qualifying rate for uninsured mortgages will remain the greater of the mortgage contract rate plus 2.00% or 5.25%. OSFI reviews and communicates the minimum qualifying rate at least every December. OSFI also issued a letter on the use of standardized approach for operational risk capital by Category 1 Small and Medium-Size Deposit-Taking Institutions (SMSBs). OSFI revised the Capital Adequacy Requirements (CAR) Guideline, of which the Chapter 3—Operational Risk—stipulates that the Category I SMSBs with Annual Adjusted Gross Income greater than $1.5 billion must use the Standardized Approach when determining their operational risk capital charge. Additionally, Category I SMSBs with Annual Adjusted Gross Income of less than $1.5 billion will, by default, use the Simplified Standardized Approach but may apply to OSFI for the use of the Standardized Approach if they have a minimum of five years of high-quality internal operational risk loss data.
To support the implementation of the Standardized Approach, OSFI has developed data maintenance expectations and a related assessment tool for operational risk capital data used in the Standardized Approach. Operational risk data includes both internal operational risk loss data and the components of the Business Indicator that are used to calculate operational risk capital. The letter sets out the general application and assessment process that Category I SMSBs with less than $1.5 billion of Annual Adjusted Gross Income need to follow in seeking approval from OSFI to use the Standardized Approach. If approved, these institutions will have their Internal Loss Multiplier (ILM) floored at one until OSFI can confirm that the institution has 10 years of high-quality internal operational risk loss data. For a Category I SMSB with less than $1.5 billion of Annual Adjusted Gross Income and 10 years of internal loss data, OSFI may require the ILM to be adjusted (floored at one or greater than one) based on its assessment of the quality of the institution’s internal operational risk loss data. Starting from June 01, 2022,
Category I SMSBs with five or more years of high-quality internal operational risk loss data may submit applications to OSFI for approval to use the Standardized Approach. Applications will be reviewed in the order in which they are received. All applications must include the following information:
- Completed self-assessment against the Assessment Tool— Operational Risk Capital Data;
- Completed form L3 providing details of internal loss data for each of the years available up to a maximum of 10 years (only at the consolidated level; line of business can be excluded);
- Completed 2023 Basel Capital Adequacy Reporting (BCAR) schedule for operational risk capital for the most recent quarter using the Simplified Standardized Approach; and
- Completed 2023 BCAR schedule for operational risk capital for the most recent quarter using the Standardized Approach
The draft Operational Risk Capital Data Management Expectations and the related Assessment Tool were issued for public consultation in June 2021. OSFI expects to release the final version of these documents in early 2022, which should be used for the application. The consultation on the draft BCAR was issued in May 2021, with OSFI expecting to release the final version of BCAR in early 2022, which should be used for the application.
- Rate for Uninsured Mortgages
- Notice on Standardized Approach
- Proposed Data Management Expectations
- Assessment Tool: Operational Risk Capital Data
- BCAR 2023
- CAR 2023
- Form L3
Keywords: Americas, Canada, Banking, Basel, Regulatory Capital, Operational Risk, CAR Guideline, Standardized Approach, Simplified Standardized Approach, BCAR, SMSBs, Mortgage Lending, Credit Risk, Minimum Qualifying Rate, Uninsured Mortgages, OSFI
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