AMF announced a series of measures to minimize the impact of COVID-19 on the financial system in Québec. The measures involve adjustments to the capital and liquidity adequacy guidelines, regulatory and administrative relief in respect of certain provisions of the Deposit Institutions and Deposit Protection Act, and updates on the consultation and supervisory processes. The announcements concern financial services cooperatives, trust companies, savings companies, and deposit institutions that are authorized under the Deposit Institutions and Deposit Protection Act.
The notice related to new measures for deposit and trust institutions aims to reduce the impact of issues stemming from COVID-19 outbreak. This notice outlines announcements related to capital and liquidity standards, minimum requirements and internal targets, consultations, the application of IFRS 9, and other elements of supervision in the financial sector. The relief measures will come into effect as of their publication and, unless otherwise specifically indicated, will cease to be in effect on further notice from AMF.
Adjustments to capital requirements
- Definition of default (delinquent loans)—AMF is authorizing the financial institutions concerned to treat deferred loans as performing loans for regulatory purposes if the institution deems that such loans, which were not in default at the time the deferral took effect, would have been performing loans.
- Transitional arrangements for capital treatment of expected loss provisioning—AMF is introducing transitional arrangements for expected credit loss provisioning that are available under the Basel Framework. The adjustment to Tier 1A capital will be dynamically measured each quarter as the increase in Stage 1 and Stage 2 allowances relative to the baseline level. Allowances allocated to portfolios treated under the Internal Ratings Based Approach that are in an expected loss shortfall position during the transition period will not be eligible for this treatment.
Adjustments to liquidity requirements
- Liquidity coverage ratio—AMF is providing the financial institutions concerned with the guidance related to the minimum short-term liquidity requirement. AMF confirms that, in line with the current provisions of the Liquidity Adequacy Guideline, no liquidity coverage ratio outflow must be taken into account for secured funding transactions with the Bank of Canada, regardless of the type of collateral utilized in the transaction.
- Net stable funding ratio—AMF is providing flexibility in the net stable funding ratio treatment for assets encumbered as part of the Bank of Canada liquidity operations during stress periods. Assets pledged for exceptional Bank of Canada liquidity operations will receive the same Required Stable Funding factor that is applied to an equivalent asset that is unencumbered, regardless of the remaining time of encumbrance.
- Minimum requirements and internal targets—AMF could, on a case-by-case basis, allow the financial institutions concerned to operate at different thresholds than the usual internal targets and the minimum requirements set by AMF under the Liquidity Adequacy Guideline. Financial institutions requiring additional time to file their disclosures with AMF may submit a request, providing support for it.
Consultations and implementation dates
AMF is suspending all consultations that are underway for draft guidelines and quantitative impact studies. On March 27, 2020, BCBS announced that it was deferring the implementation timeline of Basel III reforms. In line with this extension, AMF is also deferring implementation dates for all Basel III reforms (published by BCBS on December 2017), to the first quarter of 2023. The reforms include revisions to the standardized approach and internal ratings-based approach to credit risk, the operational risk framework, the leverage ratio framework, and the new more risk-sensitive capital floor. The date for updating the forthcoming templates and tables under the Pillar 3 Disclosure Requirements Guideline of AMF is also being deferred to the first quarter of 2023. AMF is deferring the implementation date of the final set of revisions to the BCBS market risk framework to January 2024. Consequently, the implementation date of the revised credit valuation adjustment framework is also being deferred to January 2024.
Application of IFRS 9 in exceptional circumstances
- Significant increase in credit risk—AMF supports the IASB position and points out that the concerned financial institutions should not continue to apply calculation methods existing prior to the COVID-19 crisis; instead, they should review their assumptions to ensure that they are valid. The utilization of a payment deferral program should not, therefore, result in an automatic trigger for significant increase in credit risk.
- Forward-looking information—In determining the economic impact of COVID-19 outbreak, the concerned financial institutions are encouraged to consider the exceptional circumstances, significant government support, the high degree of uncertainty, and established long-term economic trends evidenced by past experience in determining reasonable and supportable forward-looking information. AMF expects the concerned financial institutions to remain up-to-date with developments to revise their models as new information becomes available.
- Disclosures—AMF expects the concerned financial institutions to provide sufficient and timely disclosures to allow users to understand assumptions and judgments made by management during the period to address the COVID-19 outbreak. Disclosures should include transparency on the nature and uptake of payment deferral programs and significant changes made to forward-looking information and economic forecasts compared to the prior reporting period.
Regulatory and administrative relief measures
AMF also announced regulatory and administrative relief measures in respect of certain provisions of the Deposit Institutions and Deposit Protection Act and its regulation:
- Compliance Testing Postponed and Streamlined—AMF is postponing compliance testing until next Fall and may limit its scope. However, AMF will continue to work with institutions to ensure that data is available for deposit repayment purposes.
- Implementation of Data Requirements 3.0 Postponed—AMF was planning to officially publish its proposed data requirements 3.0 on its website in April 2020 in view of their coming into force on April 30, 2021. AMF is postponing the implementation of its requirements 3.0, which was initially scheduled for April 30, 2021. AMF would like to harmonize the timing of their implementation with the new date that will be determined at the federal level.
Keywords: Americas, Quebec, Canada, Banking, COVID-19, Basel III, Deadline Extension, IFRS 9, ECL, Credit Risk, Market Risk, Disclosure, Regulatory Capital, Liquidity Risk, AMF
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