Canada Regulatory Updates

What Changed

• - OSFI is proposing targeted revisions to the existing Capital and Liquidity Treatment of Crypto‑asset Exposures (Banking) Guideline, rather than a wholesale rewrite, in order to better reflect...
• The draft changes would explicitly recognize cross‑exchange hedging for Group 2a crypto‑assets when the instruments are traded on regulated exchanges of traditional financial assets, allowing more...
• Under the proposal, banks’ market‑neutral strategies in Group 2a crypto‑assets would receive capital treatment that more closely reflects actual economic risk, reducing instances where only partial...
• No change is proposed to the risk weights applied to Group 2a crypto‑assets, meaning existing Group 2a capital charge levels remain intact under the draft revisions.
• No change is proposed to the eligibility of Group 2a crypto‑assets as collateral, so current collateral treatment and related haircuts remain unchanged by this consultation.

Suggested Considerations

• Assess whether your institution currently has, or plans to have, exposures to Group 2a crypto‑assets traded on regulated exchanges of traditional financial assets, and map all related positions, hedges, and trading strategies.
• Review existing market‑neutral and cross‑exchange hedging strategies for crypto‑asset exposures to determine how expanded recognition of cross‑exchange hedges could change risk‑weighted assets, leverage exposure, and liquidity metrics under OSFI’s proposed treatment.
• Perform an impact assessment and scenario analysis comparing existing capital and liquidity requirements for Group 2a exposures under the current guideline versus the proposed cross‑exchange hedge recognition, quantifying potential capital relief or shifts in capital allocation.
• Update internal capital policy documentation, trading desk procedures, and risk‑management standards to incorporate the proposed hedging recognition framework, including eligibility criteria for “regulated exchanges of traditional financial assets,” subject to final OSFI requirements.
• Prepare and submit a consultation response to OSFI by 20 July 2026, highlighting any operational, risk‑measurement, model, or documentation challenges with implementing cross‑exchange hedge recognition and recommending clarifications where needed.

Key Dates

References

• [1] osfi-bsif.gc.ca/en/about-osfi/multimedia-library/osfis-ca...
• [2] osfi-bsif.gc.ca/en/guidance/guidance-library/capital-liqu...
• [3] osfi-bsif.gc.ca/en/news/osfi-launches-consultation-regula...
• [4] youtube.com/watch?v=TfnKz7h5RIc
• [5] osfi-bsif.gc.ca/en/about-osfi/progress-our-initiatives/mo...
• [6] mcmillan.ca/insights/publications/osfi-allows-greater-cry...
• [7] osfi-bsif.gc.ca/en/guidance/guidance-library/capital-liqu...
• [8] osfi-bsif.gc.ca/en/guidance/guidance-library

What Changed

• - OSFI proposes to amend Guideline B‑12 – Interest Rate Risk Management to update prescribed interest rate shock scenarios used for measuring interest rate risk in the banking book.
• The interest rate shock calibration will be aligned with the most recent BCBS methodology for IRRBB, including improved treatment of environments where policy rates are close to zero or negative.
• The time series used to calibrate interest rate shock scenarios will be extended from a previous cut‑off of December 2015 to now incorporate data through December 2023, capturing the recent period of...
• OSFI intends to strengthen transparency and market discipline by consulting simultaneously on proposed amendments to Pillar 3 disclosure expectations related to interest rate risk in the banking book.
• The revised B‑12 guideline will introduce updated expectations for IRR measurement, monitoring, and reporting that ensure institutions recognize more recent market experience in their internal risk...

Suggested Considerations

• Perform a gap analysis comparing current interest rate risk in the banking book methodologies, shock scenarios, and assumptions against the proposed revised Guideline B‑12 parameters and BCBS‑aligned calibration approach.
• Engage internal stakeholders (risk management, treasury/ALM, finance, regulatory reporting, model validation, and internal audit) to review the consultation text and identify operational, data, and model impacts from the extended December 2015–December 2023 calibration window and new shock design.
• Prepare and submit a detailed written response to OSFI at Consultations@osfi-bsif.gc.ca by 20 July 2026, highlighting any concerns with scenario calibration, procyclicality, data availability, systems impacts, and implementation timelines.
• Update IRRBB models, interest rate scenario engines, behavioral assumptions (e.g., non‑maturity deposits, prepayments), and risk metrics (e.g., economic value of equity and earnings‑at‑risk) to incorporate the revised OSFI shock scenarios once the final guideline is published on 10 September 2026.
• Revise internal IRRBB policies, risk appetite statements, limits frameworks, and governance documentation to align with the updated Guideline B‑12 expectations and ensure Board and senior management oversight reflects the new calibration.

Key Dates

References

• [1] osfi-bsif.gc.ca/en
• [2] en.wikipedia.org/wiki/Office_of_the_Superintendent_of_Fin...
• [3] publications.gc.ca/collections/collection_2012/bsif-osfi/...

What Changed

• - Extends the scope of Guideline B‑2 (Large Exposure Limits) beyond domestic systemically important banks (DSIBs) to include Category 1 and Category 2 small and medium‑sized banks (SMSBs), bringing...
• Replaces the existing 1994 large exposure guideline for Category 1 and Category 2 SMSBs with a single modern framework aligned to the January 2019 version of Guideline B‑2.
• Removes Category 3 SMSBs from the large exposure guideline regime, so they will no longer be subject to OSFI large exposure limits under Guideline B‑2.
• Removes foreign bank branches from the scope of the large exposure guideline, so foreign bank branches will no longer be subject to Guideline B‑2 requirements.
• Introduces a hard limit for Category 1 and Category 2 SMSBs that total exposures to a single counterparty or group of connected counterparties must not exceed 25% of the institution’s Tier 1 capital.

Suggested Considerations

• Conduct an impact assessment to quantify current single‑name and connected‑counterparty exposures relative to the proposed 25% of Tier 1 capital limit for Category 1 and Category 2 SMSBs.
• Identify and map all existing large exposure policies, procedures, and limits that are based on the 1994 large exposure guideline and plan their replacement with a framework aligned to the 2019 Guideline B‑2 approach.
• Review and, where necessary, redesign methodologies and internal criteria for identifying groups of connected counterparties so they are consistent with OSFI’s updated expectations under the draft revised Guideline B‑2.
• Update credit risk measurement processes and systems so that exposures for large exposure purposes are calculated net of eligible credit risk mitigation in line with OSFI capital requirements.
• Assess data, systems, and reporting capabilities to ensure the institution can produce quarterly large exposure reports using the same template as larger banks, including drill‑downs by counterparty and connected counterparty groups.

Key Dates

References

• [1] osfi-bsif.gc.ca/en/news/save-date-osfis-second-quarterly-...
• [2] newswire.ca/news-releases/osfi-s-quarterly-release-streng...
• [3] osfi-bsif.gc.ca/en/about-osfi/progress-our-initiatives/mo...
• [4] mcmillan.ca/wp-content/uploads/2024/03/GLI-BR24_Chapter-4...
• [5] osfi-bsif.gc.ca/en/guidance/guidance-library
• [6] bis.org/bcbs/publ/d473.pdf
• [7] osfi-bsif.gc.ca/en/guidance/guidance-library/climate-risk...

What Changed

• - Clarifies classification of deposits as retail funding for favorable liquidity treatment, segmenting partnership deposits by insurance status, transactional account type, and established retail...
• Combines two proposed categories of retail structured notes into one, aligning their liquidity treatment with term deposits managed by unaffiliated third parties; specifies maturity measurement for...
• Simplifies the definition of retail rate-sensitive deposits to improve consistency in liquidity risk measurement across LCR, NSFR, and NCCF metrics.
• Builds on prior LAR updates (e.g., 2025), incorporating Basel Consolidated Framework standards with OSFI-specific notes for Canadian institutions; maintains two core standards (LCR and NSFR) plus...
• Reflects stakeholder feedback on draft revisions, enhancing treatment of hybrid retail-wholesale products amid market innovation.

Suggested Considerations

• Review and update internal liquidity risk frameworks, models, and reporting to incorporate clarified retail funding classifications (e.g., partnership deposits, structured notes) for LCR, NSFR, NCCF, and other metrics.
• Recalibrate deposit classifications, maturity calculations for autocallable notes, and contingent funding triggers; ensure alignment with OSFI Notes in the guideline and read alongside Guideline B-6.
• Conduct gap analyses against prior LAR versions (e.g., 2025) and test compliance via supervisory tools like OCFS (if applicable) and intraday monitoring; prepare for OSFI assessments.
• Institutions should document processes for retail rate-sensitive deposits and notify OSFI if needed (e.g., Category III SMSBs on derivatives within 60 days of quarter-end).
• Engage OSFI via Consultations@osfi-bsif.gc.ca for clarifications; maintain records of consultation feedback implementation where relevant.

References

• [1] osfi-bsif.gc.ca/en/news/backgrounder-final-liquidity-adeq...
• [2] osfi-bsif.gc.ca/en/guidance/guidance-library/liquidity-ad...
• [3] osfi-bsif.gc.ca/en/news/osfis-quarterly-release-continuin...
• [4] osfi-bsif.gc.ca/en/guidance/guidance-library/liquidity-ad...
• [5] osfi-bsif.gc.ca/en/guidance/guidance-library/consultation...
• [6] osfi-bsif.gc.ca/en/guidance/guidance-library/draft-liquid...
• [7] osfi-bsif.gc.ca/en/guidance/guidance-library/small-medium...
• [8] moodys.com/web/en/us/insights/regulatory-news/osfi-to-rev...