Spring 2017

Waiting for Basel? Next steps for Canada’s bank capital regime − remarks by Superintendent Jeremy Rudin

On April 6, 2017, Superintendent Jeremy Rudin delivered remarks to the C.D. Howe Institute in Toronto, on the topic of Basel III and Bank Capital. Following are some key excerpts:

Canada has reached a significant juncture in the evolution of our approach to bank regulation. In the years following the global financial crisis, agreements reached by an international body — the Basel Committee on Banking Supervision — have been, by far, the most important influence on our regulatory agenda.

Now, that influence may be waning.

Until recently, the Committee had been working to complete the reform agenda, but those negotiations have stalled, and it is not clear when they will resume in earnest.

Canada is preparing to move ahead on its own, with a Canada-specific plan for improving our capital regime. If we conclude that the Basel process is unlikely to restart in the near future, OSFI will put that plan into action in a measured way.

While we remain hopeful that the Basel Committee will reach an agreement that Canada can support, the possibility remains that negotiations could be stalled for some time. Finding consensus among the 27 jurisdictions represented on the Basel Committee — jurisdictions that differ along legal, economic and cultural lines — is always a challenge. Now that some are questioning the value of multilateralism more generally, the challenge is even greater.

We recognize that moving ahead on our own would not give us a completely free hand. We are mindful of preserving a level playing field domestically, and for our banks that compete internationally. We are prepared to impose higher standards on Canadian banks than the international minimums when it is necessary to bolster safety and soundness. We have done this in the past, we are doing it to some extent in the present, and we are prepared to do so in the future. But these departures from a level playing field need to meet a stringent test.

Ideally, we would have an international consensus on the dynamic role of capital buffers; a consensus that was clear to banks and to market participants. This may be too much to ask in the current circumstances. We need to be prepared to build a clear plan for the use of capital buffers by Canadian banks, and to build a new and better understanding about the role of capital buffers in Canada.

View the full remarks. 

OSFI’s 2017-2018 Departmental Plan

On March 9, 2017, OSFI’s 2017-2018 Departmental Plan was tabled in Parliament. Following is a brief excerpt from the Superintendent’s Message:

Over the course of the 2017-2020 planning period, OSFI will continue to devote the majority of its efforts to implementing its core mandate in a way that contributes to public confidence in the Canadian financial system.

OSFI will focus on the following five priorities:

• Tighten the link between effort at OSFI and results in the field
• Strengthen our ability to anticipate and respond to severe but plausible risks to the Canadian financial system
• Reinforce our principles-based guidance and supervision
• Influence international guidance, standards and reforms with a view to implementing them in the context of what is best for Canada
• Set and meet high standards for managing our own resources

View the full report.   

OSFI releases the final version of Guideline E-22

On February 24, 2017, OSFI issued the final version of Guideline E-22, Margin Requirements for Non-Centrally Cleared Derivatives.

Under this Guideline, most federally regulated financial institutions meeting the definition of a covered entity are subject to the mandatory exchange of variation margin beginning on March 1, 2017.  This implementation date is in line with several major global peers and consistent with the internationally agreed timelines from the Basel Committee on Banking Supervision and the International Organization of Securities Commissions.

OSFI expects institutions to track their progress in meeting the requirements of Guideline E-22 on the exchange of variation margin and provide status updates as requested.

View the Guideline.

IFRS 9 is deferred for life insurers

On March 20, 2017, OSFI released the final version of its Advisory: Deferral of IFRS 9 Application for Federally Regulated Life Insurers.

The Advisory is in response to the September 2016 International Accounting Standards Board-approved amendment to the International Financial Reporting Standard (IFRS) 4 Insurance Contracts, allowing companies whose activities are predominantly connected with insurance to defer the application of IFRS 9 Financial Instruments until January 1, 2021.

View the Advisory. 

OSFI releases final version of Pillar 3 Disclosure Requirements

On April 20, 2017, OSFI released the final version of its Pillar 3 Disclosure Requirements, following a public consultation process.

This Guideline sets out OSFI’s expectations for domestic systemically important banks (D-SIBs) on the domestic implementation of the Revised Pillar 3 Disclosure Requirements, issued by the Basel Committee on Banking Supervision (BCBS) in January 2015. Effective October 31, 2018, this Guideline will replace the existing disclosure requirements issued under Basel II (including Basel 2.5 enhancements and revisions) in the areas of credit risk, counterparty credit risk and securitization activities.

View the Guideline.

Revised Risk Assessment Framework for private pension plans and guidance note on asset management

On April 5, 2017, OSFI posted updated versions of the Risk Assessment Framework for Federally Regulated Private Pension Plans and its accompanying guidance note on asset management.

Key updates reflect changes to the pension plan examination process and include additions on what to consider when assessing risk in situations where a pension plan or a pooled registered pension plan offers investment choices to its members.

View the updated framework and accompanying guidance note.   

2016-2017 Financial Institutions Survey

On April 5, 2017, OSFI commissioned Environics Research Group, an independent research firm, to conduct a confidential survey with executives of the financial institutions that OSFI regulates. The primary objective was to assess OSFI’s performance as a prudential regulator and supervisor.

Overall impressions of OSFI as a regulator and supervisor are positive in nearly all areas. The majority of the results from the 2016-2017 survey are better than or comparable to results from the previous study conducted in 2014-2015. The highest positive ratings in 2016-2017 pertain to overall satisfaction with OSFI and its effectiveness in supervising financial institutions, consistent with previous survey results.

View the survey overview.

Updates from the Office of the Chief Actuary

On February 8, 2017, the Office of the Chief Actuary presented a report to the board of directors of the Canada Pension Plan Investment Board (CPPIB). The report provided information on demographic, economic and investment assumptions, along with information from the 28th CPP Actuarial Report.

On February 20, 2017, Chief Actuary Jean-Claude Ménard showcased Canada’s three-tiered retirement income system in China’s capital for the launch of a Chinese translation of “Fixing the Future,” a book which traces the political and financial hurdles that were overcome when the Canada Pension Plan Investment Board was created in the 1990s.

On April 20, 2017, the Office of the Chief Actuary released the findings of an external panel commissioned to review the 27th Actuarial Report on the Canada Pension Plan (CPP). The external peer review panel’s findings conclude that the work performed by the OCA on the 27th CPP Actuarial Report meets all statutory requirements.

View updates from the Office of the Chief Actuary.

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The OSFI Pillar is published by the Communications Division of the Office of the Superintendent of Financial Institutions Canada.

For more information on the articles in this issue, or to provide feedback, please e-mail OSFI Communications at: communications@osfi-bsif.gc.ca.

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