OSFI revised the capital floor that will set a minimum on the required regulatory capital for banks using internal models, relative to the Basel II standardized approach. The capital floor will be implemented effective second quarter of 2018, with the floor factor transitioned in over three quarters. The floor factor will be set at 70.0% in the second quarter of 2018, increasing to 72.5% in the third and 75% in the fourth quarter of 2018. The capital floor will be further updated over time, as changes are made to the OSFI capital framework.
As a BCBS member, OSFI participated in the development and finalization of the Basel III reforms, which include replacement of the existing capital floor with a more robust, risk-sensitive output floor, based on the Basel III standardized approaches. Given that the proposed implementation of the Basel III output floor and revised standardized approaches is not expected to begin before 2022, this interim step will improve risk-sensitivity while ensuring the objectives of the capital floor continue to be met. The detailed description of the revised capital floor is mentioned in Annex 1. The revised floor must be reported in the Basel Capital Adequacy Reporting (BCAR) regulatory return as of second quarter of 2018, according to the instructions provided in Annex 2. Changes will be made to the BCAR return to reflect the revised floor for the first quarter of 2019.
The revisions apply to banks, bank holding companies, federally regulated trust and loan companies, and cooperative retail associations. Capital floors and their associated disclosure requirements support the credibility and comparability of risk-weighted capital calculations.
Related Link: OSFI Letter
Previous ArticleEBA Issued Revised List of ITS Validation Rules in June 2017
PRA, via the consultation paper CP12/20, proposed changes to its rules, supervisory statements, and statements of policy to implement certain elements of the Capital Requirements Directive (CRD5).
EIOPA published the financial stability report that provides detailed quantitative and qualitative assessment of the key risks identified for the insurance and occupational pensions sectors in the European Economic Area.
EBA published its risk dashboard for the first quarter of 2020 together with the results of the risk assessment questionnaire.
EBA announced that the next stress testing exercise is expected to be launched at the end of January 2021 and its results are to be published at the end of July 2021.
PRA published the consultation paper CP11/20 that sets out its expectations and guidance related to auditors’ work on the matching adjustment under Solvency II.
MAS published a statement guidance on dividend distribution by banks.
APRA updated its capital management guidance for banks, particularly easing restrictions around paying dividends as institutions continue to manage the disruption caused by COVID-19 pandemic.
FSB published a report that reviews the progress on data collection for macro-prudential analysis and the availability and use of macro-prudential tools in Germany.
EBA issued a statement reminding financial institutions that the transition period between EU and UK will expire on December 31, 2020; this will end the possibility for the UK-based financial institutions to offer financial services to EU customers on a cross-border basis via passporting.
SRB published guidance on operational continuity in resolution and financial market infrastructure (FMI) contingency plans.