The Office of the Superintendent of Financial Institutions (OSFI) has released proposed revisions to the Leverage Requirements (LR) guideline in order to align with upcoming modifications to Chapter 4 (Settlement and Counterparty Risk) and Chapter 7 (Securitization) of the Capital Adequacy Requirements (CAR) guideline.

The LR set out the framework for the leverage ratio, which provides an overall measure of the adequacy of an institution's capital and serves as a supplementary measure to the risk-based capital requirements specified in the CAR guideline. As stated in our previous post, the Basel III reforms also include revisions to the Basel III leverage ratio framework.

The proposed revisions to the LR guideline are as follows:

  • Replacing the Current Exposure Method for computing counterparty credit risk exposure amounts for derivatives with the Standardized Approach to Counterparty Credit Risk (SA-CCR). The new method will align with the planned implementation of SA-CCR under Chapter 4 of the CAR guideline.
  • Changes to the treatment of securitized assets that meet the operational requirements for recognition of significant risk transfer to align with the proposed revisions in Chapter 7 of the CAR guideline.
  • Aligning treatment of the credit conversion factors for off-balance sheet securitization exposures with those under the proposed revisions to Chapter 7 of the CAR guideline.

Changes are set to be implemented in Q1 2019 – November 1, 2018, for institutions with an October 31st year end, and January 1, 2019, for institutions with a December 31st year end.

Comments should be provided no later than September 21, 2018.

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