OSFI Issues Letter on 2016-17 ICAAP and Next ICAAP Submissions
OSFI issued a letter that provides feedback on the 2016-17 Internal Capital Adequacy Assessment Process (ICAAP) Submission. The letter also states that a formal ICAAP submission to OSFI is not required for 2018. The letter is addressed to deposit-taking institutions that are using the Basel standardized approach to credit risk.
Based on the review of the ICAAP assessments submitted in December 2016, OSFI identified a number of key themes:
- Real Estate Downturn Stress Test. Results of the required real estate stress test varied, given the different methodologies and assumptions used by each institution. A number of standardized deposit-taking institutions reported immaterial real estate downturn impact relative to their uninsured mortgage portfolio. OSFI encourages institutions to reassess their results for reasonability, given the nature of their respective portfolio and the overall impact on the level of impaired loans that would likely accompany a severe real estate downturn.
- Assessment and Documentation of Risks. A number of ICAAPs did not provide sufficient detail on the risk assessment and quantification used to determine the internal capital target. Furthermore, rationale was not always provided in cases where the impact of stress test results was not factored into capital allocation.
- Determination of Internal Capital Target. OSFI continues to observe misalignment of board-approved capital targets and ICAAP capital requirements for some standardized deposit-taking institutions.
OSFI expects that, in 2018, standardized deposit-taking institutions will update their ICAAP as part of their annual planning process, to assist the capital planning process, including the re-confirmation of internal capital targets. Furthermore, Lead Supervisors may request to review the ICAAP of an institution, as part of the ongoing supervisory process. Further communication will be sent to the industry in late 2018, providing more guidance on the next ICAAP submission as well as OSFI’s expectations of internal audit coverage for ICAAP and Basel Capital Adequacy Reporting (BCAR). OSFI has been informing standardized deposit-taking institutions of its expectations with respect to the Pillar 2 implementation, the submission requirements of ICAAP, and the expectations for internal audits of both the ICAAP and BCAR submissions. OSFI has received six rounds of ICAAP submissions to date.
Related Link: OSFI Letter
Keywords: Americas, Canada, ICAAP, BCAR, Pillar 2, Basel III, Stress Testing, OSFI
Featured Experts
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Laurent Birade
Advises U.S. and Canadian financial institutions on risk and finance integration, CCAR/DFAST stress testing, IFRS9 and CECL credit loss reserving, and credit risk practices.
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Previous Article
ESMA Updates Q&A on Transparency Issues Under MiFID II/MiFIRRelated Articles
EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
EBA Mulls Inclusion of Environmental & Social Risks to Pillar 1 Rules
The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.
BCBS Consults on Disclosure of Crypto-Asset Exposures of Banks
As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.
BCBS and EBA Publish Results of Basel III Monitoring Exercise
The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.
PRA Updates Timeline for Final Basel III Rules, Issues Other Updates
The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.
US Treasury Sets Out Principles for Net-Zero Financing
The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.
EC Launches Survey on G7 Principles on Generative AI
The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.
ISSB Sustainability Standards Expected to Become Global Baseline
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
BCBS Assesses NSFR and Large Exposures Rules in US
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.
