The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work, an Information Sheet on the Residential Mortgage Underwriting Practices and Procedures Guideline (B-20), and the annual update to the Manual of Reporting Forms and Instructions for deposit-taking institutions. OSFI also announced that it has determined that the leverage ratio exclusion of central bank reserves is no longer necessary or fit-for-purpose; thus, starting from April 01, 2023, deposit-taking institutions will be required to include central bank reserves in their leverage ratio exposure measures.
As part of the annual update on regulatory forms and instructions for deposit-takers, OSFI made changes to several forms and announced that the semi-annual filings which the Bank of Canada collects for the OTC Derivatives Survey (OT), which is collected on behalf of the Bank for International Settlements (BIS), and the Foreign Exchange Volume Survey, which is collected on behalf of the Canadian Foreign Exchange Committee (CFEC), will now be submitted via the Regulatory Reporting System (RRS) .OSFI made changes to the following regulatory reporting forms and instructions, effective for 2023 filing:
- Basel Capital Adequacy Return (BCAR) (BA)
- Leverage Requirements Return (LR)
- Net Cumulative Cash Flow (NCCF) – new DT2
- Balance Sheet (M4) – instructions only
- Income Statement (P3)
- Interbank and Major Exposures Return (EB/ET)
- Balance Sheet by Booking Location (Z4)
- Home Equity Lines of Credit (HELOCs) (J2)
- Report on New and Existing Lending (A4)—Instructions only
OSFI also published a new guideline on assurance on capital, leverage, and liquidity returns. This guideline applies to the capital returns of all federally regulated insurers as well as the capital, leverage, and liquidity returns of all federally regulated deposit-taking institutions. The guideline lays out a three-step approach to enhancing and aligning assurance expectations over capital, leverage, and liquidity returns, including an external audit opinion on the numerator and denominator of key regulatory ratios, senior management attestation on regulatory returns, and an internal audit opinion on the processes and controls followed in preparing these returns. The guideline seeks to inform external auditors and institutions on the work to be performed on their regulatory returns in an effort to enhance and align these expectations across all federally regulated financial 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. The internal audit assurance requirements for capital, liquidity, and leverage returns of D-SIBs and SMSBs commence in fiscal 2023.
Risk outlook for 2022-23
The report on annual risk outlook sets out the following work priorities of OSFI for the coming months:
- As part of its ongoing work, OSFI plans to conduct a general policy review of residential mortgage and underwriting practices as set out Guideline B-20 in 2023.
- In consideration of the pandemic-related and ongoing economic headwinds, OSFI will defer some of its non-financial risk regulatory initiatives. Respective timelines for issuance of draft and final guidance on third-party risk, operational risk and resilience, and culture risk management will be extended until early-to-mid 2023. A planned consultation on revisions to Guideline E-23 on model risk management is deferred to mid-2023.
- While OSFI expects to release the final Guideline B-15 on Climate Risk Management in the first quarter of 2023, OSFI will continue to review the feedback received during the consultation on the draft Guideline. The Guideline will also align with the International Sustainability Standards Board standards, which are not yet final. These factors, among others, could result in a delay to the release of the final Guideline.
- For deposit-taking institutions, a planned consultation on Guideline B-11 on unencumbered assets and pledging is being delayed to early 2024.
- In response to rising technology and cyber threat risks, OSFI recently issued for consultation Draft Guideline B-13 titled Technology and Cyber Risk Management. This draft Guideline sets out expectations for sound technology and cyber risk management and requires financial institutions to have in place measures that promote resilience to cyber events and technology disruptions. The final version of Guideline B-13 is expected to be released in 2022.
- In the spring of 2023, OSFI plans to consult on a draft revised Guideline E-21 on operational risk management, with revisions focusing on operational resilience while reinforcing operational risk management.
- Building on OSFI’s 2021 discussion paper on climate-related financial risks and the joint Bank of Canada-OSFI pilot project on transition risk scenarios, OSFI will issue guidance to set out its expectations of institutions’ climate risk management and climate-related financial disclosures in 2022-23.
- OSFI expects to release draft revisions to Guideline B-10 for public consultation in Q2 2022 to Q1 2023. OSFI is repositioning the current Guideline B-10 on Outsourcing of Business Activities, Function and Processes to a Guideline on Third-Party Risk Management to better reflect a more comprehensive set of third-party risks within an expanded third-party ecosystem. The revised guideline will place greater emphasis on governance and risk management programs. It will set outcomes-focused, principles-based expectations for institutions supporting the sound management of third-party risk. It will call on institutions to identify, assess, monitor, and manage all third-party arrangements, in proportion to the criticality and risk of the arrangement.
- OSFI Annual Report 2021-2022
- Information Sheet on Guideline B-20
- Annual Reporting Update
- Updated Manual of Returns
- Updated Reporting Requirements
- Instructions for NCCF Return
- Unwind of Leverage Ratio Exclusions
- Annual Risk Outlook
- Guideline on Capital Returns
Keywords: Americas, Canada, Banking, Guideline B 20, Mortgage Lending, Lending, Basel, Reporting, Work Priorities, Regtech, Third Party Risk, Cloud Computing, Regulatory Timelines, OSFI
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