Internal Capital Adequacy Assessment Process (ICAAP) Submission in 2016

Document Properties

  • Type of Publication: Letter
  • Date: July 26, 2016
  • To: DTIs using the Basel Standardized Approach to Credit Risk

OSFI last wrote to all Deposit Taking Institutions (DTIs) using the standardized approach to Pillar I capital levels (Standardized DTIs) on August 12, 2015, providing high level observations regarding OSFI’s review of the 2014 ICAAP submissions, outlining OSFI’s requirements for internal audit review of BCAR and ICAAPs for the 2015/16 cycle, and providing timelines regarding the next ICAAP submissions.

The purpose of this communication is to:

  1. Re-confirm the 2016 ICAAP submission due date of December 31, 2016 and internal audit reports due date of February 28, 2017;
  2. Provide an updated ICAAP template and key metrics report appendix; and
  3. Highlight the key changes in ICAAP expectations for 2016, including the revision to the real estate downturn scenario and the reverse stress test requirement.

a) Submission Timelines

As indicated on the August 12, 2015 letter, the next submission to OSFI of each Standardized DTI’s board-approved ICAAP will be December 31, 2016 for all institutions (December and October year ends). 

It is OSFI’s preference that the submission be based on the portfolio as at the end of Q3-2016; however, if this expectation does not align with your institution’s ICAAP/Capital Budgeting processes, please contact your Lead Supervisor to discuss an alternate “as at” date. 

b) ICAAP Submission Requirements

Appendix 1 is the preferred report outline and required key metrics report to be used for the ICAAP submission.  As in the past, while the use of the report outline is not mandatory, the submitted summary should cover all the elements contained in this outline.

c) ICAAP Expectation Changes

Please note that the template remains essentially the same as in previous years, with two key changes for the ICAAP submissions in 2016:

  • The real estate downturn stress scenario is amended to require 50% downturn in valuations for Greater Vancouver, 40% downturn in valuations for Greater Toronto and 30% downturn in valuations for all other areas.
  • Previously, only the CET1 Ratio and Total Ratios were taken into account in the reverse engineered stress test.  This year, the reverse engineered stress test must also take into account the scenario where the authorized leverage ratio may be breached.

Please refer to the ICAAP Submission Template for more details on these changes.

d) ICAAP/BCAR Internal Audit Requirements

The next set of internal audits of the 2016 ICAAP and Q3- 2016 BCAR are to be submitted to OSFI by February 28, 2017.  Please note that the internal audit submission should cover all of the audit elements outlined in the August 12, 2015 letter.

OSFI expects all DTIs to complete this process, as we believe a robust ICAAP enables DTIs to better manage through business cycles.  Should you have any questions or concerns, please contact your OSFI Lead Supervisor.

Yours sincerely,

 

James Hubbs
Assistant Superintendent
Deposit-Taking Supervision Sector