The Office of the Superintendent of Financial Institutions (OSFI) is proposing revisions to its guideline for banks and other firms to reflect ongoing reforms to the regulation of over-the-counter (OTC) derivatives markets.
The federal regulator is updating its guideline to introduce expectations for central clearing of standardized OTC derivatives, to introduce requirements for reporting derivatives data to a trade repository; and to reflect current risk management practices, recognizing the distinction between the requirements for dealers and end-users of derivatives.
"The guideline is being updated to reflect the over-the-counter (OTC) derivatives market reforms initiated by G20 leaders in order to improve transparency, mitigate systemic risk, and protect against market abuse," OSFI says in a letter to firms.
The revised guideline will apply to all federally regulated firms and their subsidiaries, effective November 1; although OSFI notes that the guideline includes bank-specific references, given that the Canadian derivatives market is dominated by the five largest banks.
OSFI also points out that rules made by other regulators, such as the provincial securities regulators, will apply to federally regulated firms by virtue of the revised guideline. For example, provincial regulators' new derivatives trade reporting requirements are due to take effect on Oct. 31. OSFI says that it will monitor firms' compliance with these requirements, "and will continue to review the appropriateness of their application to [federally-regulated firms]."
Additionally, OSFI notes that the Bank Act is being revised to introduce an explicit rule-making authority regarding the OTC derivatives activities of banks. And, it says that other measures that are being developed at the international level to establish margin requirements for non-centrally cleared derivatives will also apply to firms under OSFI's jurisdiction; these requirements will apply at a future date to be announced in 2015, it says.
Finally, OSFI says that future revisions to this guidance will be considered, "to ensure that a consistent and comprehensive set of federal rules continue to apply to the OTC derivatives activities of banks and other [federally-regulated firms]."
Comments on the revisions are due by November 14.