OSFI to Review Liquidity Adequacy Guidelines and Policy Architecture
The Office of the Superintendent of Financial Institutions (OSFI) is consulting, until June 21, 2023, on a review of the liquidity treatment provided in the Liquidity Adequacy Requirements (LAR) Guideline for wholesale funding sources with retail-like characteristics. OSFI also set out its progress on the initiatives in the strategic plan for 2023-25 and launched the Policy Architecture Renewal or PAR, an initiative that seeks to simplify and streamline policy and guidance documents.
The review of liquidity adequacy guideline is intended to assess the need for new wholesale funding categories to appropriately reflect the risks of retail-like wholesale products such as the high-interest savings account exchange traded funds (HISA ETFs). OSFI will also analyze any similar types of products with retail characteristics, but which banks access via a financial institution’s intermediation. Comments are welcomed, among others, on whether the existing LAR guideline appropriately reflects the risk profile for products sourced from other financial institutions that have retail-like characteristics. If not, feedback is welcomed on areas where additional categorization would be appropriate. For any relevant exposures, feedback is welcomed on applicable data or stress-testing models on unitholder composition and redemption history as well as any other supporting rationale for preferential liquidity treatment. If OSFI concludes that new wholesale funding categories are warranted in the LAR Guideline, the earliest implementation date for new categories would be in the 2024 calendar year. In the interim, the current framework remains applicable and wholesale funding from financial institutions must receive the treatment per the LAR Guideline (100% run-off at earliest possible maturity redemption in Liquidity Coverage Ratio; 0% Available Stable Funding factor in Net Stable Funding Ratio). Any deposit-taking institutions needing to transition liquidity measurement related to HISA ETFs will have until August 01, 2023.
The Policy Architecture Renewal forms an integral part of the OSFI Blueprint for Transformation, building on the strong history of supporting financial stability and its reputation as a global leader in prudential policy. The Policy Architecture Renewal will make OSFI guidelines easier to understand by removing redundancy and duplication, re-organizing documents in a more understandable manner, and increasing consistency in how information is written and presented. OSFI plans to consult with stakeholders on Policy Architecture Renewal (PAR) in the Summer of 2023. The updated policy architecture will include:
- Guidance Handbook that consolidates all guidelines in one location, with clear, consistent, and plain language regulatory expectations
- Practices Handbook encompassing supervisory expectations and industry best practices and self-assessments
- New policy instruments that ensure capture of right information at the right time to allow for better risk responses
Related Links
- Press Release on LAR Guideline Review
- Press Release on Policy Architecture Renewal
- Blueprint on Policy Architecture Renewal
- Progress Update on Six Transformation Pillars
Keywords: Americas, Canada, Banking, Policy Architecture Renewal, Liquidity Adequacy, Guideline, LCR, NSFR, Basel, Liquidity Risk, OSFI
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