OSFI Addresses Regulation of Crypto-Assets, Issues FAQs on Basel Rules
The Office of the Superintendent of Financial Institutions (OSFI), together with the Financial Consumer Agency of Canada (FCAC) and the Canada Deposit Insurance Corporation (CDIC), issued a statement to regulate entities engaged in crypto-asset activities or crypto-related services. OSFI also published a Digital Innovation Roadmap that outlines its planned work to assess emerging risks and technologies in an evolving digital finance ecosystem and updated the frequently asked questions (FAQs) on the implementation of Basel III banking reforms.
The Statement on crypto-asset activities reinforces the expectation that federally regulated entities should adhere to all applicable current regulatory requirements and guidance when carrying out any crypto-related services or engaging in crypto-asset activities. Regulated entities are expected to clearly understand the risks of any planned crypto-asset activities and ensure that these risks have been properly addressed. Regulated entities must also ensure that any crypto-asset activities comply with existing federal financial laws including the Bank Act, Insurance Companies Act, Trust and Loan Companies Act, and Proceeds of Crime (Money Laundering) and Terrorist Financing Act as well as any regulations or guidance issued by federal and provincial regulatory agencies. The statement highlights existing regulatory requirements related to prudential regulation, consumer protection, and deposit insurance.
As part of Digital Innovation Roadmap, OSFI has planned multiple projects to provide additional clarity on the areas of risk management and governance pertaining to digital assets in the coming 24 months. Through OSFI’s Blueprint for Transformation 2022-2025, OSFI has created the Digital Innovation Impact Hub, focused on developing its approaches to the regulation of digital technologies in the financial space; the current workplan is focused on four key pillars—that is, advancing policy work in areas of risk management and governance (areas specific to stablecoin arrangements and crypto-asset custody), creating a regulatory sandbox, developing supervisory practices and tools, and engaging with stakeholders. OSFI also seeks feedback on this from regulated and non-regulated entities for the short and medium term, with the comment period ending on January 19, 2023.
FAQs on Basel III Reforms. The updated set of FAQs offers guidance on certain aspects of the Basel III-related changes to the Capital Adequacy Requirements Guideline, the Liquidity Adequacy Requirements Guideline, and the Leverage Requirements Guideline. With respect to the Capital Adequacy Requirements Guideline, the published FAQs address aspects of risk-based capital targets, definition of capital, operational risk, standardized approach for credit risk, internal ratings-based approach to credit risk, settlement and counterparty risk, and credit valuation adjustment (CVA) risk. With respect to the Liquidity Adequacy Requirements Guideline, OSFI has published FAQs related to the liquidity coverage ratio and the net cumulative cash flow while, for the Leverage Requirements Guideline, OSFI has published FAQs related to the leverage ratio buffer.
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Keywords: Americas, Canada, Banking, Basel, Regulatory Capital, Credit Risk, Operational Risk, FAQ, CVA Risk, Counterparty Credit Risk, Regtech, Stablecoins, Regulatory Sandbox, Crypto Assets, OSFI
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