OSFI published two documents to consult on the management of operational risk capital data for institutions required, or for those applying, to use the Basel III standardized approach for operational risk capital in Canada. The documents set out data maintenance expectations for institutions using the standardized approach for operational risk data and an assessment tool for the operational risk capital data. OSFI also proposed to rescind the existing governance and data maintenance implementation notes for the standardized approach/advanced measurement approach institutions as well as the self-assessment template on implementation of the revised Capital Adequacy Requirements (CAR) guideline in 2023. These would be replaced by the aforementioned proposed data maintenance expectations and the related assessment tool. The comment period for this consultation ends on July 30, 2021.
The document on data maintenance expectations outlines data management principles that OSFI expects institutions using the standardized approach to adhere to, which include the BCBS principles for effective risk data integration and risk data reporting. These principles include governance, data architecture and IT infrastructure, accuracy and integrity, completeness, timeliness, adaptability, accuracy, comprehensiveness, clarity and usefulness, frequency, and distribution. In addition, OSFI expects that data used in the calculation of operational risk capital institutions will have:
- Documentation outlining the end-to-end systems and data flows, including key controls for critical failure points, to support the data management processes required to calculate operational risk capital
- Established policies and documented procedures for the storage, retention, and archiving, including, where applicable, the procedures for logical/physical deletion of loss data and destruction of data storage media and peripherals
- Processes to maintain backups of relevant data files/stores and databases in a manner that can facilitate ready retrieval in the event of information calls on the institutions’ compliance and ongoing supervisory assessments
- Processes to ensure that the electronic versions of all relevant data are accessible in a format that provides flexibility to enable searching, aggregation and reporting
These criteria should be used in assessing, both initially and on an ongoing basis, an institution’s data used in the calculation of operational risk capital. OSFI will consider the institution’s risk profile and complexity when assessing its compliance with these criteria. Additional details on the OSFI expectations can be found in the assessment tool. The assessment tool summarizes the detailed expectations based on Chapter 3 of the draft CAR guideline, Aggregation and Risk Reporting (RDARR) principles, and the data maintenance expectations. Together, the data maintenance expectations and assessment tool aim to ensure that institutions effectively manage the current and historical operational risk capital data.
In this context, OSFI has reviewed the existing implementation notes and self-assessment templates for institutions using standardized approach/advanced measurement approach, in light of the new requirements for the Basel III standardized approach. The regulator found that many of the qualifying requirements for standardized approach/advanced measurement approach (for example: scenario analysis, external data, business environment, and internal control factors) are not part of the new standardized approach, which uses internal operational loss data as a direct input as part of the capital charge calculation. Moreover, many of the operational risk management expectations found in the implementation notes have been updated and incorporated into other Basel standards as well as OSFI guidance (for example, Guideline E-21 on operational risk management and the corporate governance guideline). Thus, OSFI is proposing to rescind the existing governance and data maintenance implementation notes for the standardized approach/advanced measurement approach institutions as well as the self-assessment template, upon implementation of the revised Capital Adequacy Requirements guideline in 2023.
Comment Due Date: July 30, 2021
Keywords: Americas, Canada, Banking, Operational Risk, CAR Guideline, Standardized Approach, Reporting, Basel, Regulatory Capital, Data Assessment Tool, OSFI
Previous ArticleNGFS on Addressing Financial Stability Issues from Biodiversity Loss
The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.
As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.
A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.
The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards
The Swiss Federal Council recently decided to further develop the Swiss Climate Scores, which it had first launched in June 2022.
The Basel Committee on Banking Supervision (BCBS) launched consultation on a Pillar 3 disclosure framework for climate-related financial risks, with the comment period ending on February 29, 2024.
The U.S. President Joe Biden signed an Executive Order, dated October 30, 2023, to ensure safe, secure, and trustworthy development and use of artificial intelligence (AI).
The Monetary Authority of Singapore (MAS) launched an integrated digital platform, Gprnt, also known as “Greenprint.”
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.
The Network for Greening the Financial System (NGFS) published its latest set of long-term climate macro-financial scenarios (Phase IV) for assessing forward-looking climate risks.