Featured Product

    OSFI Note Explains Assessment of Internal Models Under CAR Guideline

    January 29, 2021

    OSFI published an implementation note that outlines the key principles and processes for the assessment of internal models used for regulatory capital calculations (capital models), in alignment with the Capital Adequacy Requirements (CAR) Guideline. These capital models relate to the measurement of credit, market, and counterparty credit risks for calculating minimum regulatory capital requirements. The Capital Model Assessment Program (CMAP) applies to all deposit-taking institutions intending to use new capital models or intending to implement the modifications to the previously approved capital models.

    Under Chapter 1 of the CAR Guideline, institutions are required to obtain approval from OSFI prior to the use of advanced approaches for regulatory capital. The assessment of these capital models is governed by the CMAP for any primary and sub-risk factor eligible for the internal model regime. Out of the primary risk factors, the internal ratings-based (IRB) approach is applicable for credit risk and the internal model approach (IMA) is applicable for market risk. Additionally, counterparty credit risk is considered a sub-risk factor and is eligible for the Internal Model Method (IMM). The CMAP framework defines acceptance standards that are designed to help an institution establish a model that meets the minimum regulatory requirements at the onset of an OSFI approval and on an ongoing basis. 

    The implementation note describes the CMAP applicable to both, the new applicants and the accredited institutions. Once an institution is accredited, the CMAP covers entirety of the capital model lifecycle from the assessment of new model applications to any subsequent modifications, performance monitoring, periodic ongoing compliance reviews, and model decertification. According to this implementation note, applications are only required from institutions to OSFI for new models, material modifications, and acquisitions. Post-implementation reviews are outside the scope of this implementation note and managed through customary supervisory processes. Once an institution achieves accreditation, it is expected to maintain robust controls to ensure ongoing compliance with requirements of the CAR Guideline, relevant implementation notes, and Guideline E-23 on enterprise-wide model risk management for deposit-taking institutions. Accredited institutions are required to provide the following information to their Lead Supervisor within six months of each fiscal year-end:

    • A letter from the Chief Risk Officer, confirming that the existing inventory of approved capital models continues to adhere to all minimum applicable requirements.
    • Positive assurance from Internal Audit, in respect of the effectiveness of controls designed by management to ensure applicability to the inventory of approved capital models remains appropriate for regulatory capital purposes. Appended to this opinion should be a completed copy of the self-assessment for each risk factor. Supporting materials should be available and provided to OSFI upon request.
    • A list of all approved capital models in production as of the reporting date. For IMA, this should also include the list of approved products to which the capital models are applied.
    • A list of all waivers, exemptions, and migrations applicable as of the reporting date. Moreover, the name of the portfolio, its size, and expiry date of the waiver should be clearly reported. 

     

    Related Link: Implementation Note

     

    Keywords: Americas, Canada, Banking, Regulatory Capital, CAR Guideline, Credit Risk, Market Risk, Counterparty Credit Risk, IRB Approach, Internal Model, Basel, OSFI

    Featured Experts
    Related Articles
    News

    APRA Publishes Results of Climate Risk Self-Assessment Survey

    The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.

    August 04, 2022 WebPage Regulatory News
    News

    ACPR Publishes Updates Related to CRD IV and Covered Bonds

    The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).

    August 03, 2022 WebPage Regulatory News
    News

    BIS Paper Contributes to Debate on Regulating NBFIs and Big Techs

    The Financial Stability Institute (FSI) of the Bank for International Settlements recently published a paper proposing a framework for classifying financial stability regulation as either entity-based or activity-based.

    August 03, 2022 WebPage Regulatory News
    News

    EIOPA Publishes Guidance on Climate Change Scenarios in ORSA

    The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).

    August 02, 2022 WebPage Regulatory News
    News

    EBA and ECB Respond to Proposals on Sustainability Disclosures

    The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.

    August 01, 2022 WebPage Regulatory News
    News

    BIS Report Notes Existing Gaps in Climate Risk Data at Central Banks

    A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.

    July 29, 2022 WebPage Regulatory News
    News

    EBA Publishes Multiple Regulatory Updates for Regulated Entities

    The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.

    July 29, 2022 WebPage Regulatory News
    News

    EIOPA Issues SII Taxonomy and Guide on Sustainability Preferences

    The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.

    July 29, 2022 WebPage Regulatory News
    News

    EESC Opines on Proposals on CRR and European Single Access Point

    The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).

    July 29, 2022 WebPage Regulatory News
    News

    HM Treasury Publishes Multiple Regulatory Updates in July 2022

    HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.

    July 29, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8423