OSFI Issues Draft Guideline on Assurance Expectations for Bank Returns

The draft guideline seeks to better inform auditors and institutions on the work to be performed to enhance and align assurance expectations over key regulatory returns that contribute to the OSFI assessment of the safety and soundness of institutions across all federally regulated financial institutions. The assurance expectations apply to the capital returns of all federally regulated financial institutions; these include the capital, leverage, and liquidity returns of all federally regulated deposit-taking institutions. The returns in scope for domestic systemically important banks (D-SIBs) and small and medium-size deposit-taking institutions (SMSBs) include the Basel Capital Adequacy Return (BCAR), Leverage Requirements Return (LRR), Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR), Net Cumulative Cash Flow (NCCF), and the Operating Cash Flow Statement (OCFS) returns. 

Capital, leverage, and liquidity are all important measures of financial safety and soundness in the deposit-taking institution industry. As such, external auditors should opine on whether the material risk components in the numerator and denominator of key capital, leverage, and liquidity ratios are free from material misstatements, including whether regulatory capital model implementation is consistent with the OSFI-approved models. These expectations apply to the key regulatory returns filed by domestic systemically important banks (D-SIBs) on a consolidated basis as well as for wholly-owned subsidiaries. OSFI expects external auditors to evaluate and opine on whether the material risk components in the numerator and denominator of the ratios listed on Schedule 10.010 of the BCAR, the Leverage and Total Loss Absorbing Capacity (TLAC) Leverage Ratios schedule of the LRR, and the LCR and NSFR returns at the year-end reporting date have been prepared in accordance with the appropriate regulatory frameworks and are free of material misstatements. The external audit assurance requirements for D-SIBs commence in fiscal 2024. External auditors are expected to provide their opinion to the OSFI lead supervisor annually within 90 days of the fiscal year-end.

OSFI recognizes that there may be operational complexities in applying the external audit assurance requirements at the subsidiary level for SMSBs due to the size and nature of their business activities. Therefore, SMSBs may apply the enhanced assurance requirements at the consolidated level. Wholly-owned subsidiaries of SMSBs are exempt from these requirements. The external audit assurance requirements for SMSBs’ capital, leverage, and liquidity returns commence in fiscal 2024. External auditors of SMSBs are expected to provide their opinion to the OSFI lead supervisor annually within 90 days of the fiscal year-end. External auditors for Category II SMSBs may stagger submission of their opinions biennially beginning with the capital ratios in fiscal 2024, followed by the liquidity ratios in fiscal 2025. External auditors of Category III SMSBs may provide their audit opinion biennially.

Related Links

• Press Release
• Draft Guideline

Comment Due Date: May 31, 2022

Keywords: Americas, Canada, Banking, Reporting, Proportionality, Internal Control, External Audit, Compliance Risk, Regulatory Capital, Liquidity Risk, Leverage Ratio, Basel, OSFI