Canada: Federal Financial Institutions Legislative and Regulatory Reporter – May 2016

Last Updated: June 21 2016
Article by Jeffrey S. Graham

Most Read Contributor in Canada, September 2016

The Reporter provides a monthly summary of Canadian federal legislative and regulatory developments of relevance to federally regulated financial institutions. It does not address Canadian provincial financial services legislative and regulatory developments, although this information is tracked by BLG and can be provided on request. In addition, purely technical and administrative changes (such as changes to reporting forms) are not covered.

April 2016

Institution Published Title and Brief Summary Status

[Applicable to Banks, Bank Holding Companies, Federally Regulated Trust and Loan Companies, Cooperative Retail Associations]
Issued April 29, 2016 Updates to Chapter 6 of Guideline A — Capital Adequacy Requirements (CAR)

The Office of the Superintendent of Financial Institutions Canada (OSFI) released for public consultation proposed updates to the regulatory capital requirements for loans secured by residential real estate. These updates will ensure that capital requirements remain prudent in periods where house prices are high relative to household income and/or house prices are increasing rapidly in nominal terms. The proposed updates apply to those federally regulated deposit-taking institutions (DTIs) approved by OSFI to use the internal ratings-based (IRB) approach to credit risk.
Comments should be provided no later than June 10, 2016
[Applicable to banks]

Published April 21, 2016 Standards for interest rate risk in the banking book issued by the Basel Committee

The standards revise the Committee's 2004 Principles for the management and supervision of interest rate risk, which set out supervisory expectations for banks' identification, measurement, monitoring and control of IRRBB as well as its supervision. The standards reflect changes in market and supervisory practices since the Principles were first published in 2004, which is particularly pertinent in light of the current exceptionally low interest rates in many jurisdictions.
Expected to be implemented by 2018
Finance Introduced (H of C) April 20, 2016 Bill C-15 Budget Implementation Measures Act, 2016
  • Division 3 of Part 4 amends the sunset provisions of certain Acts governing federal financial institutions to extend by two years, namely, from March 29, 2017 to March 29, 2019, the period during which those institutions may carry on business.
  • Division 4 of Part 4 amends the Bank Act to facilitate the continuance of local cooperative credit societies as federal credit unions by granting the Minister of Finance the authority to provide transitional procedural exemptions, as well as a loan guarantee.
  • Division 5 of Part 4 amends the Canada Deposit Insurance Corporation Act to, among other things, broaden the Corporation's powers to temporarily control or own a domestic systemically important bank and to convert certain shares and liabilities of such a bank into common shares.

    It also amends the Bank Act to allow the designation of domestic systemically important banks by the Superintendent of Financial Institutions and to require such banks to maintain a minimum capacity to absorb losses.

    Lastly, it makes consequential amendments to the Financial Administration Act, the Winding-up and Restructuring Act and the Payment Clearing and Settlement Act.
  • Division 6 of Part 4 amends the Office of the Superintendent of Financial Institutions Act to change the membership of the committee established under that Act so that the Chairperson of the Canada Deposit Insurance Corporation is replaced by that Corporation's Chief Executive Officer.
Second Reading May 10, 2016
[Applicable to banks]
Published April 14, 2016 Definitions and disclosure of non-performing exposures and forbearance proposed by the Basel Committee

The definitions proposed by the Basel Committee aim to promote harmonisation in the measurement and application of two important measures of asset quality and thereby foster consistency in supervisory reporting and disclosures by banks.

The proposed definitions complement the existing accounting and regulatory framework in relation to asset categorisation. They are intended to be used, for example, in the supervisory monitoring of a bank's asset quality as well as by banks in their credit risk management and as part of their internal credit categorisation systems.
Comments should be provided no later than July 15, 2016
[Applicable to banks]
Published April 6, 2016 Revisions to the Basel III leverage ratio framework

The proposed revisions cover the following issues:
  • measurement of derivative exposures;
  • treatment of regular-way purchases and sales of financial assets;
  • treatment of provisions;
  • credit conversion factors for off-balance sheet items; and
  • additional requirements for global systemically important banks.
The final design and calibration of the proposals will be informed by a comprehensive quantitative impact study.
Comments should be provided no later than July 6, 2016
[Applicable to banks]

Published April 1, 2016 Regulatory consistency assessment programme (RCAP) — Analysis of risk-weighted assets for credit risk in the banking book

This report is the second by the Basel Committee to analyse variation in risk-weighted assets (RWA) in banks using internal ratings-based models to calculate credit risk capital requirements. The study evaluates two types of risk estimates. First, it considers those risk estimates used for exposures to retail customers and small and medium-sized enterprises. Second, it explores the way banks evaluate the likely exposure at default across all asset classes.

This report is part of the Committee's wider Regulatory Consistency Assessment Programme (RCAP), which is intended to ensure consistent implementation of the Basel III framework. Its analysis of regulatory outcomes complements other reports by the Committee on variation in RWA for market risk and counterparty credit risk, as well as an earlier report on RWA variation for credit risk published in July 2013.

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