Backgrounder: Draft Capital Adequacy Requirements Guideline (2027)

Overview

The Office of the Superintendent of Financial Institutions (OSFI) has launched a 90-day public consultation on proposed revisions to the Capital Adequacy Requirements (CAR) Guideline (2027).

As part of the proposed revisions, OSFI has made several changes to the capital requirements for credit risk particularly for the treatment of land acquisition, development and construction (ADC) exposures under the Standardized Approach (SA) for credit risk.

These changes ensure requirements are sufficiently detailed, clear, and closely tied to actual risks and will give financial institutions more flexibility.

Some key revisions include:

• lowering the base risk weight for low-rise residential real estate from 150% to 130% to better reflect the lower risk nature of low-rise residential builds.
• introducing a 90% risk weight for residential ADC (both high and low-rise) where the level of pre-sales is equal to or greater than 75%.
• allowing institutions to consider ADC projects with loan-to-values (LTVs) lower than 80% as mostly complete and apply the income producing commercial real estate treatment if a certificate of occupancy has been issued.

For corporate exposures, the draft CAR Guideline (2027) proposes lowering the risk weight applied to Corporate Small and Medium Size Enterprise (SME) exposures and lowering the risk weight under the credit risk SA for unrated non-investment-grade corporate exposures. This would decrease financial institutions regulatory capital requirements for loans to such borrowers. These changes could potentially lead to increased lending to smaller businesses and make it cheaper for them to borrow.

For market risk requirements, the revisions touch on credit spreads and maturity assignments for cash equity positions in market risk capital as well as update ongoing monitoring and approval requirements.

These proposed changes would give financial institutions more flexibility and reduce regulatory burden.

Why it’s important

The CAR Guideline is aimed at supporting the financial resilience and stability of deposit-taking institutions. The draft Guideline (2027) defines the requirements for how much capital financial institutions must maintain and aligns them to the risks institutions face.

With draft CAR Guideline (2027), OSFI continues to identify where and how capital requirements can best be aligned with actual risks. The changes give financial institutions more flexibility for lending and investment while maintaining their stability and soundness.

The proposed revisions are aimed at reducing unnecessary burden without compromising the safety and soundness of financial institutions. They support the competitiveness of financial institutions, where warranted, to free up capacity that banks can use to extend more credit.

Implementation

The public consultation on draft CAR Guideline (2027) ends on February 18, 2026. The final CAR Guideline (2027) will be published in September 2026 and comes into effect on November 1, 2026, or January 1, 2027, for institutions with a fiscal year ending October 31 or December 31, respectively.