Office of the Superintendent of Financial Institutions
For Deposit-Taking Institutions using the Basel Standardized Approach to Credit Risk (DTIs), the following suggested template may be used in their ICAAP submission to OSFI. While the use of this template is not mandatory, the submitted document should
cover all the elements contained in the template below. Please note that OSFI expects to receive a document that has been approved by the institution’s board.
Please note that the
completion of Appendix A of this template is mandatory for submission purposes. In addition, please note that institutions
must also complete an additional appendix outlining the risk assessment and quantification methodology used.
The amount of detail in the ICAAP document will vary based on the size and complexity of the institution. Supplementary information such as policies, risk management frameworks and processes can be referred to by way of appendices.
This summary should provide an overview of the ICAAP methodology and results such as:
This section should provide a high-level overview of the institution’s ICAAP, pulling together the institution’s risk management framework, business planning and capital management. The overview should cover relevant policies and systems used by the institution to identify, manage and monitor its risks according to its risk appetite.
This section should provide a high-level overview of the institution’s risk appetite and set out the frequency of review of the risk tolerance by management and the board.
This section should provide a concise description of the institution’s risk identification process and outline how the institution identifies material risk areas. Key risks which should be considered as part of an ICAAP include, but not limited to:
separate appendix (include as Appendix B to your ICAAP submission), please provide further detail on the institution’s risk assessment and quantification methodology, including:
At a minimum, OSFI expects DTIs to provide a Pillar II capital allocation to cover IRRBB and credit concentration risk. Where the DTI does not have a material credit risk, it should ensure capital allocation is made to cover operational/reputation risk.
This section should include:
This section should provide a concise description of how the institution’s stress testing program is used to support capital adequacy assessment and management.
DTIs should develop their own scenarios so that stress tests covering all its major risks and material portfolios are reported.
For deposit-taking institutions with lending exposures, an IRRBB and a real-estate market downturn stress test are, at a minimum, generally expected.
For non-deposit-taking institutions a focus on operational risk stress test, are, at a minimum, generally expected.
All institutions are encouraged to conduct a reverse engineered scenario that challenges its viability and would cause a breach in regulatory capital adequacy ratios (CET1, total capital ratio and leverage ratio). Such tests may be useful in uncovering hidden risks and interactions among risks.
As ICAAP is, first and foremost, a key internal process in the institution’s capital management and planning, stress tests used for ICAAP should be determined by the institution as deemed appropriate. However, OSFI may, at times, request institutions to conduct standardized stress tests and report the results of these stress tests, together with their impact on ICAAP. These should also be included in the Key Metrics Table laid out in Appendix A.
This section should:
ICAAP should describe how each material risk is quantified for capital allocation purpose, including detailed methodology to specify data, assumptions and calculations.
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This is still the FI's ICAAP but includes OSFI's standardized stress test such as interest rate shock and real estate downturn scenarios. Detailed assumptions on these tests are to be provided by the Lead Supervisor.
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If ICAAP uses different risk quantification for Pillar 1 risks, reasonable explanations should be provided for the difference in each risk type/adjustment.
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Key Metrics Table should contain all material risks/adjustments considered in ICAAP.
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If an inter-risks diversification benefit is considered, ICAAP should clearly describe rationale. Note that OSFI’s supervisory review process will generally not take into account any inter-risks diversification benefit unless it is quantified by a rigorous model with adequate support.
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If available capital used in ICAAP analysis is other than regulatory capital, ICAAP should provide definition used (e.g. economic; common equity, etc.).
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