OSFI Finalizes Guidelines on CAR and Leverage Requirements
OSFI published the final version of the leverage requirements guideline and the capital adequacy Requirements (CAR) guideline for implementation in the first quarter of 2019. The main revisions relate to the domestic implementation of the standardized approach to counterparty credit risk (SA-CCR), capital requirements for bank exposures to central counterparties (CCPs), and the securitization framework. The changes become effective on November 01, 2018 for institutions with an October 31 year-end and on January 01, 2019 for institutions with a December 31 year-end.
CAR Guideline. In addition to the above changes, OSFI has clarified the capital treatment for right-of-use assets resulting from the adoption of IFRS 16, beginning January 01, 2019. This treatment will become effective for institutions on their adoption of IFRS 16. Moreover, the guideline includes the changes to the capital floor that were communicated to industry in January 2018. OSFI has also removed the Credit Valuation Adjustment (CVA) phase-in and other transitional arrangements that conclude at the end of 2018. The guideline now lists Kroll Bond Rating Agency Inc. as an eligible external credit assessment institution (ECAI) for capital purposes, which became effective on July 06, 2018. Finally, OSFI has provided clarifications throughout the Guideline in response to questions received from the industry as part of the regular annual updates. The attached table in Annex 1 summarizes comments received and provides an explanation of how the comments have been addressed in the guideline.
Leverage Requirements Guideline. The leverage requirements guideline now incorporates the standardized approach to counterparty credit risk (SA-CCR) for calculating derivatives exposures. This approach will replace the Current Exposure Method for computing counterparty credit risk exposure amounts for derivatives. The new method will align with the implementation of SA-CCR under Chapter 4 of the CAR guideline in the first quarter of 2019. The revised leverage requirements guideline also includes changes to the treatment of securitized assets that align with revisions to the operational requirements for recognition of significant risk transfer in Chapter 7 of the CAR guideline. OSFI has also aligned treatment of the credit conversion factors for off-balance sheet securitization exposures with those included under revisions to Chapter 7 of the CAR guideline. The attached table in Annex 1 summarizes comments received and provides an explanation of how the comments have been addressed in the guideline.
The December 2017 Basel III reforms include revisions to the Basel III leverage ratio framework, including a buffer for global systemically important banks (G-SIBs) and other technical refinements to the leverage ratio exposure measure. OSFI will consider these revisions separately as part of the domestic implementation of the Basel III reforms and will consult stakeholders as part of the consultation process for any future changes to the leverage requirements guideline.
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Effective Date: November 01, 2018/January 01, 2019 (depending on fiscal year-end)
Keywords: Americas, Canada, Banking, Basel III, CAR Guideline, Leverage Requirements Guideline, Securitization Framework, SA-CCR, Leverage Ratio, Capital Floor, OSFI
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