Office of the Superintendent of Financial Institutions
This guideline outlines OSFI’s expectations with respect to an
institution’s ICAAP and supplements Guidelines A and A-1, Capital
Adequacy Requirements (CAR). The principles embodied in
the draft guideline are consistent with the Supplemental Pillar
2 Guidance included in the Basel Committee on Banking Supervision’s
July 2009 paper, Enhancements to the Basel II Framework.
With this letter, OSFI issues the final version of guideline, unchanged
from the August 2010 draft.
Capital requirements set out in the CAR guidelines are regulatory
minimums that assume that an institution has a portfolio of risk
exposures that is highly granular and widely diversified. Institutions
can not assume that compliance with regulatory minimum capital requirements
provides a safe harbour in a risk-based capital regime.
A thorough and comprehensive ICAAP is a vital component of a strong
risk management program. The ICAAP should produce a level of capital
adequate to support the nature and level of an institution’s risk.
Each institution is responsible for developing and implementing
its own ICAAP for the purpose of setting internal capital targets
and developing strategies for achieving those internal targets that
are consistent with its business plan, risk profile and operating
In the case of institutions using the standardized approach to
credit risk, OSFI’s Supervision Sector issues ICAAP letters that
provide feedback from our reviews of institutions’ ICAAPs. The letters,
most recently issued in December 2009, also provide a foundation
for structured discussions of ICAAP with these institutions.
OSFI recognizes the considerable systems development required
to support the rollout of the ICAAP over the last 3 years. It also
recognises that further systems development may be necessary as
ICAAP systems mature. Because ICAAP is an institution-owned process
and not an exercise in regulatory compliance, OSFI would expect
institutions to prioritize any residual development work based on
their assessment of risks arising from shortcomings or weaknesses
in their own processes.
Questions concerning the guideline should be addressed to Aina
Liepins, Capital Division, at (613) 991-5555, by facsimile at (613)
991-6822 or by e-mail at email@example.com.