From the Regulators

Planned revisions to the treatment of insured residential mortgages reflect changing risks

By James Langton |

The Office of the Superintendent of Financial Institutions (OSFI) on Friday released for public consultation revisions to its Capital Adequacy Requirements Guideline (CAR).

The draft guideline includes planned revisions to the treatment of insured residential mortgages to reflect the changing risks in the Canadian mortgage market, and aims to clarify the conditions for mortgage insurance to curb risk for regulatory capital purposes.

"These changes aim to reinforce the need for banks to exercise prudent underwriting and proper due diligence when originating insured mortgages," the federal regulator says in a news release.

Also included are proposals to adopt requirements agreed by global banking regulators, including setting out OSFI's approach to the implementation of the Basel III countercyclical buffer regime in Canada, and providing guidance on the application of the Basel rules for equity investment in funds.

Other revisions aim to clarify how OSFI's capital framework will apply to federal credit unions, particularly in terms of qualifying capital instruments, deductions from capital, and transitioning of non-qualifying instruments.

The deadline for comments on the proposed changes is Oct. 18. OSFI plans to implement the changes on Nov. 1 for institutions with an Oct. 31 yearend, and Jan. 1, 2017 for firms with a Dec. 31 yearend.

OSFI also announced on Friday it is delaying implementation of a couple of planned reforms: the new standardized approach to counterparty credit risk; and revisions to the capital requirements for bank exposures to central counterparties (CCPs).

That's "because it is not clear that these requirements will be implemented by the majority of key competitors in foreign markets by January of 2017," writes Carolyn Rogers, assistant superintendent, regulation sector, in a letter to sent to federally regulated financial institutions.

OSFI is committed to implementing these reforms in a co-ordinated way, the letter says, and it now intends to implement these rules in the first quarter of 2018, assuming that foreign market counterparties confirm they are ready to adopt them during 2017.

The deadline for comments on the proposed changes is Oct. 18. OSFI is planning to implement the changes on Nov. 1 for institutions with an Oct. 31 year end, and Jan. 1, 2017 for firms with a Dec. 31 year end.

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