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    OSFI Outlines Work Areas in Focus for the Coming Year

    February 25, 2021

    OSFI published the departmental plan, which addresses the key focus areas of work for 2021-2022. During this time, OSFI work will involve implementation of Basel reforms, assessment of interaction between frameworks for expected credit losses and regulatory capital, and initiatives to address climate-change and technology risks. The supervisor will also continue to focus on vulnerable institutions and engage with them to increase the resilience of their funding models.

    The departmental plan sets out the following key focus areas for OSFI for the coming year:

    • Capital rule-making initiatives will continue to focus on implementing Basel III capital and liquidity reforms, in addition to tailoring of domestic capital and liquidity frameworks for small and medium-size deposit-taking institutions, with the associated draft guidance expected to be issued in 2021.
    • With respect to the implementation of the Basel III changes to operational risk capital, OSFI will review loss data included in standardized approach for federally regulated financial institutions.
    • OSFI will enhance its expectations on the assurance of capital, leverage, and liquidity returns for deposit-taking institutions and insurers, starting with the issuance of a discussion paper in 2021.
    • The semi-annual review of Domestic Stability Buffer will continue and OSFI will publicly disclose the results of the review. 
    • For deposit-taking institutions, OSFI will continue to assess the interaction of the expected credit loss framework (IFRS 9) with the regulatory capital framework.
    • Focus will be on operationalizing investments in new data tools and infrastructure and on advancing opportunities for data collection transformation. 
    • Work will continue on the deposit-taking institution crisis preparedness initiative, which was launched in 2019-20 and builds on recent experiences and lessons learned from inter-agency tabletop exercises and the COVID-19 pandemic.
    • The climate change scenario planning pilot project, in partnership with the Bank of Canada, will focus on developing a set of Canada-specific climate change scenarios and financial risk assessment methodologies and metrics. Banks and Insurers in the pilot will then use these scenarios to explore the potential risk exposures of their balance sheets. OSFI plans to publish a report in 2021-22, sharing details on the specific scenarios, methodology, assumptions, and key sensitivities. 
    • OSFI will publish a discussion paper on climate-related risks, with focus on how companies define, identify, measure, and build resilience to climate risks and the role OSFI can play to facilitate preparedness and resilience to these risks. It will also seek feedback on possible supervisory and regulatory responses on climate-related risks, which will inform the development of climate risk guidance and supervisory expectations from OSFI. 
    • Results of the Third Party Risk Analysis Exercise Industry Report and Technology Risk Discussion Paper will be assessed to determine refinements required to regulatory guidance and supervisory approaches (including Guideline B-10 on outsourcing).
    • OSFI will continue to review and, if necessary, refine regulatory and supervisory expectations for the use of advanced analytics as part of broader efforts to evolve model risk management expectations of OSFI.
    • The regulator will also conclude its role as Chair of the FSB's Roundtable on External Audit, which focuses on the quality of external audits of financial institutions. 

     

    Related Link: Departmental Plan

     

    Keywords: Americas, Canada, Banking, Basel, Climate Change Risk, ESG, Stress Testing, IFRS 9, ECL, Regulatory Capital, COVID-19, Credit Risk, Work Plan, Crisis Management Framework, Outsourcing Risk, OSFI

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