Federal financial regulators have launched a series of consultations that aim to refine prudential requirements for the big banks and insurers in the face of evolving risks.
The Office of the Superintendent of Financial Institutions (OSFI) unveiled a trio of public consultations on Thursday — including a 60-day consultation on proposed changes to banks’ liquidity requirements that aim to ensure that banks have enough liquid assets even during periods of market stress.
“The proposed revisions would introduce new funding categories to better reflect liquidity risks from products such as structured notes and deposits sourced through non-bank financial intermediaries,” said Amar Munipalle, executive director, risk advisory hub, at OSFI, in a statement.
“The changes would help clarify the appropriate liquidity treatment of products that straddle the line between retail and wholesale classifications,” he added.
The regulator also initiated a consultation on a “more structured supervisory review process for liquidity risk” — noting that it sees funding and liquidity risks as the chief risks facing Canadian banks.
“These risks can materialize when losses are incurred due to a stress event coupled with institutions holding insufficient liquidity. That’s why today, we are launching a 90-day consultation to engage stakeholders, industry, and the public in a dialogue on how we can strengthen our supervisory review process,” Munipalle said.
Finally, OSFI is also consulting on proposed changes to the capital rules for insurers — specifically, the minimum capital test that aims to ensure that property and casualty insurers have enough capital to cover potential losses.
Among other things, these changes aim to simplify the guidance on insurance risk, OSFI said, to ensure that these risks are addressed consistently. That consultation will also run for 90 days.
At the same time, the regulator also announced revisions to the capital adequacy test for life insurers that, it said, will give insurers more flexibility in risk management, and also strengthens “reinsurance oversight and transparency.”
Those changes include adjusting the calculation of credit risk and market risk capital requirements for segregated fund guarantees “to align with other products,” OSFI said. It noted that the adjustment is part of its regular process to keep these guidelines current.
“The consultations and changes being announced today balance new innovations and modernization within the industry with sound supervisory oversight,” Munipalle said.
“Today’s announcements reflect our commitment to ensuring our guidance remains well-aligned with today’s rapidly changing risk environment,” said Peter Routledge, superintendent of financial institutions, in a release.
“While Canada’s liquidity regime is strong, regularly reviewing and updating OSFI’s guidance will help make it even more resilient,” he added.