On December 10, 2012, the Office of the Superintendent of
Financial Institutions Canada (OSFI) issued the final version of
the revised Capital Adequacy Requirements Guideline (the
Guideline). The Guideline has been revised as a result of the
Basel Committee on Banking Supervision (the BCBS) reforms to
strengthen global capital rules with the goal of promoting a more
resilient banking sector, commonly referred to as Basel III.
The Guideline will come into effect January 2013 for all banks,
bank holding companies, federally regulated trust and loan
companies and cooperative retail associations, with the exception
of the provisions relating to Credit Valuation Adjustment capital
charges which will come into effect on January 1, 2014 to align
with the implementation timetable in the United States and the
In August 2012, OSFI had released a draft Guideline for
comment. Other than a few changes in certain limited areas,
the final Guideline is substantially similar to the draft
Guideline. See our previous
Osler Update on the draft Guideline. The full text of the final
Guideline is available on OSFI's website. OSFI has also
released a summary of the comments received on the draft Guideline
and how they have been addressed. This
summary is available on OSFI's website. As a result
of the revisions to the Guideline, a number of previously issued
documents communicating OSFI guidance will no longer be
list of these documents is available on OSFI's website.
Under OSFI's existing capital rules, a number of Canadian
financial institutions have issued preferred shares and innovative
Tier 1 instruments which at the time of their issuance qualified as
Additional Tier 1 instruments. Similarly, a number of
Canadian financial institutions have issued subordinated debt which
at the time of issuance qualified as Tier 2 capital. Under
the new rules, these instruments will not qualify as Additional
Tier 1 or Tier 2 capital primarily because their terms do not
include a clause requiring the full and permanent conversion of
such instruments into common shares at the point of non-viability
as described under OSFI's non-viability contingent capital
requirements. To see the minimum set of criteria for an
instrument issued by an institution to meet or exceed in order for
it to be included in Additional Tier 1 capital or Tier 2 capital,
see our previous
Osler Update on the draft Guideline.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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