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. In addition, purely technical and administrative changes (such as changes to reporting forms) are not covered.
December 2021
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Title and Brief Summary |
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Office of the Superintendent of Financial Institutions (OSFI) |
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December 20, 2021 |
Use of the Standardized Approach for Operational Risk Capital by Category I SMSBs The Office of the Superintendent of Financial Institutions’ (OSFI) revised Capital Adequacy Requirements (CAR) Guideline will come into effect fiscal Q2-2023. Under Chapter 3 - Operational Risk - of the revised CAR Guideline, Category I Small and Medium-Sized Deposit-Taking Institutions (SMSBs) with Annual Adjusted Gross Income greater than $1.5 billion must use the Standardized Approach (SA) when determining their operational risk capital charge. Category I SMSBs with Annual Adjusted Gross Income of less than $1.5 billion will, by default, use the Simplified Standardized Approach (SSA) but may apply to OSFI for the use of the SA if they have a minimum of five years of high-quality internal operational risk loss data. To support the implementation of the Standardized Approach (SA), OSFI has developed data maintenance expectations and a related assessment tool for operational risk capital data used in the SA. Operational risk data includes both internal operational risk loss data and the components of the Business Indicator that are used to calculate operational risk capital. This letter sets out the general application and assessment process that Category I SMSBs with less than $1.5 billion of Annual Adjusted Gross Income need to follow in seeking approval from OSFI to use the SA. If approved, these institutions will have their Internal Loss Multiplier (ILM) floored at one until OSFI can confirm that the institution has 10 years of high-quality internal operational risk loss data. For a Category I SMSB with less than $1.5 billion of Annual Adjusted Gross Income and 10 years of internal loss data, OSFI may require the ILM to be adjusted (floored at one or greater than one) based on its assessment of the quality of the institution’s internal operational risk loss data. |
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December 10, 2021 |
Operational Resilience Consultation Results Summary On July 6, 2021, OSFI issued an industry letter to federally regulated financial institutions (FRFIs) on operational resilience. OSFI received a number of responses from FRFIs, industry associations and a technology company. While many respondents identified a FRFI’s culture as an important driver of effective operational resilience, some argued culture would not be best addressed through an operational resilience framework. Further, several respondents viewed reputation risk as an outcome of operational and financial risk management, as opposed to a stand-alone risk. Based on this feedback, OSFI proposes to revise Guideline E-21 to shift the focus of the Guideline towards operational resilience, while continuing to reinforce OSFI’s expectations in relation to operational risk management. The revised Guideline will complement other OSFI guidelines that focus on specific risks and support operational resilience. The revised Guideline E-21 will be proportionate to FRFIs of different size, nature, scope, and complexity of operations. OSFI also intends to issue a consultative document on culture and reputation risk in Q1 2022. Respondents will have an additional opportunity to provide feedback on specific OSFI proposals on operational risk and resilience, including draft revisions to Guideline E-21 in 2022. |
Prospective consultation on culture and reputation risk in Q1 2022 |
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December 17, 2021 |
OSFI confirmed that the minimum qualifying rate for uninsured mortgages will remain the greater of the mortgage contract rate plus 2 percent or 5.25 percent. Lenders were reminded to test their borrowers to ensure that mortgages can continue to be paid during more adverse conditions. |
Announced each December, at minimum |
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December 10, 2021 |
OSFI announced that the Domestic Stability Buffer (DSB) will remain at 2.50% of total risk-weighted assets. The DSB is part of a comprehensive supervisory and capital regime that influences banks’ resilience to vulnerabilities. |
Reviewed and set every June and December, at minimum |
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Bank of Canada |
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December 16, 2021 |
CARR Publishes White Paper on the Recommended Future of CDOR In October 2020, the Canadian Alternative Reference Rate (CARR) working group was tasked with analyzing the current status of the Canadian Dollar Offered Rate (CDOR) and to make recommendations based on that analysis. CARR has published a White Paper summarizing its findings and conclusions. CARR has recommended that the administrator of CDOR, Refinitiv Benchmark Services (UK) Limited (RBSL), cease publication of all of CDOR’s remaining tenors after the end of June 2024. However, the decision to cease CDOR ultimately lies solely with RBSL and CARR’s recommendation does not constitute a public statement or publication of information that CDOR has ceased or will cease permanently or indefinitely. |
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Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) |
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December 15, 2021 |
The Financial Consumer Agency of Canada (FCAC) invites comments on a proposed Guideline on Whistleblowing Policies and Procedures for Banks and Authorized Foreign Banks (Guideline) in support of the implementation of the new Financial Consumer Protection Framework (FCPF) in the Bank Act. The FCPF introduces new or enhanced consumer protection measures that will further empower and protect consumers in their dealings with banks and authorized foreign banks (Banks). = This is the third in a series of consultations on guidelines that FCAC has developed to help banks comply with their obligations in the Bank Act and the new Financial Consumer Protection Framework Regulations, which will come into force on June 30, 2022. A first consultation on a proposed Guideline on Complaints Handling Procedures ended on December 11, 2021. A second consultation on a proposed Guideline on Appropriate Products and Services is in progress until January 6, 2022. FCAC invites all interested parties to express their views by submitting their comments by email to FCAC.Consultation.ACFC@fcac-acfc.gc.ca or by using the following form. |
Comment by January 29, 2022 |
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December 2, 2021 |
Update to Reporting Entities on Expectations as of December 1, 2021 On June 1, 2021, amendments to certain regulations enacted under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) (the amended Regulations) came into force. Per FINTRAC’s May 18, 2021 Notice on the assessment of amended Regulations, reporting entities (REs) had until December 1, 2021 to update their compliance programs and systems. On April 1, 2022, FINTRAC will begin assessing compliance with the amended Regulations. Understanding there may be challenges related to bringing some systems and operations into compliance within this timeline, FINTRAC will be reasonable in its assessment and enforcement approach. Where progress cannot be demonstrated, FINTRAC will undertake compliance assessment activities and REs may be subject to follow-up and enforcement measures. Important dates December 1, 2021: Deadline for REs to complete the implementation of large virtual currency transactions (LVCT) and electronic funds transfer (EFT) reporting systems and begin reporting transactions conducted as of this date, as well as to begin retroactively reporting transactions dated between June 1 and November 30, 2021. March 31, 2022: Deadline for REs to complete the retroactive submission of all LVCT and EFT reports received between June 1, 2021 and November 30, 2021 that are not impacted by the travel rule impediments mentioned in the body of FINTRAC Notice. Over-reported transactions must be deleted as soon as possible and no later than this date. Up to March 31, 2022, FINTRAC is issuing observations for all non-compliance with the amended Regulations pertaining to the compliance program requirements. April 1, 2022: FINTRAC will begin assessing compliance with the Regulations in force on June 1, 2021; any non-compliance observed will be cited as deficiencies, except in the specific circumstances noted above. |
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Payments Canada |
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December 16, 2021 |
Upcoming Changes to Rules, Procedures & Standards
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Target Rule Effective Date: January 31, 2022. Target Rule Effective Date: April 11, 2022. |
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Financial Stability Board (FSB) |
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December 17, 2021 |
The Financial Stability Board invites submissions of papers for a conference on systemic risks in non-bank financial intermediation (NBFI) and policies to address them. The conference, which will take place in June 2022, will contribute to the FSB’s work to develop a systemic approach to NBFI. It will feature presentations of analytical work and research that advances the understanding of systemic risks in NBFI and specific policies and approaches that may be used to address them. Submissions should be made by March 31, 2022 to NBFI.Conference@fsb.org. |
Submissions by March 31, 2022 |
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December 16, 2021 |
Global Monitoring Report on Non-Bank Financial Intermediation 2021 The Financial Stability Board (FSB) has published the Global Monitoring Report on Non-Bank Financial Intermediation 2021. The report presents the results of the FSB’s annual monitoring exercise to assess global trends and risks in non-bank financial intermediation (NBFI). This report presents NBFI developments up to end-2020, the first year of the COVID-19 pandemic, covering 29 jurisdictions that account for approximately 80 per cent of global GDP. The FSB focuses in the report particularly on those parts of NBFI that may pose bank-like financial stability risks and/or regulatory arbitrage (the so-called narrow measure of NBFI). As part of its work program to enhance the resilience of the NBFI sector, the FSB will consider further enhancements to the annual monitoring exercise in light of the COVID-19 experience. |
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December 13, 2021 |
Bail-in Execution Practices Paper The FSB has published a Practices Paper on the Execution of Bail-in. Bail-in is at the core of resolution strategies for global systemically important banks (G-SIBs). Set out in the Key Attributes of Effective Resolution Regimes for Financial Institutions, it is an important tool enabling an orderly resolution that minimizes any impact on financial stability and ensures the continuity of critical functions, without exposing taxpayers to loss. Operationalizing bail-in is a critical part of resolution planning for G-SIBs and other firms where bail-in is part of the resolution strategy. Since the adoption of the FSB's Principles on Bail-in Execution, resolution planning has progressed, and authorities have developed approaches and practices in accordance with their respective jurisdictions’ legal frameworks, securities law and exchange requirements. The FSB will continue to facilitate the sharing of practices amongst authorities and efforts to address these issues, including by continuing its engagement with stakeholders as part of the work of its Resolution Steering Group and Bank Cross-Border Crisis Management Working Group. |
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December 13, 2021 |
A Draft Framework for Money Laundering/Terrorist Financing Risk Assessment of a Remittance Corridor This draft framework by the IMF and World Bank staff provides a contribution to the FSB’s Roadmap for Enhancing Cross-Border Payments that was endorsed by G20 Leaders in 2020 and that aims to achieve faster, cheaper, more transparent, and more inclusive cross-border payment services. The endorsed roadmap comprises 19 building blocks (Building Blocks). The IMF and the World Bank were assigned to cover building block 7, on “safe payment corridors”. Accordingly, this draft framework for remittance corridors’ risk assessments is the first action under building block 7, the goal of which is to promote “safe payment corridors”, and contains two phases:
This assessment framework can be applied jointly or separately by the sender and the recipient corridor countries. |
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December 10, 2021 |
The FSB is conducting a survey as part of its work under Building Block 6 of the Roadmap for enhancing Cross-border Payments (in other words, reviewing the interaction between data frameworks and cross-border payments) The FSB wishes to gather stakeholders’ feedback in order to better understand how requirements applicable to data could affect (either enabling or impeding) cross-border payments, by potentially affecting cost, speed, access, security of cross-border payments, or interoperability of cross-border payment networks. Stakeholder views are also requested on what any potential frictions are, as well as which policies are most effective. Many of the frictions contributing to these challenges arise from their cross-jurisdictional nature. One of the key topics to consider is how existing national and regional data frameworks interact with and affect the functioning, regulation and supervision of cross-border payment arrangements. In particular, the FSB invites feedback from banks, non-banks, financial market infrastructures, academics and industry associations on the following issues:
Responses to the survey will support FSB member authorities in the analysis of the constraints on cross-border data flows imposed by existing national and regional data frameworks. Feedback via the online survey is open until January 14, 2022. |
Submissions by January 14, 2022 |
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December 7, 2021 |
2021 Resolution Report: “Glass half-full or still half-empty?” This year’s Resolution Report commemorates the tenth anniversary of the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions (Key Attributes) which were adopted by the FSB Plenary in October 2011 and endorsed by the G20 at the Cannes Summit in November 2011. Since their adoption ten years ago, the FSB Key Attributes of Effective Resolution Regimes have set the standard for the reform of resolution regimes and resolution planning across all sectors. While progress towards resolvability has been significant, the FSB´s recent evaluation of the “too big to fail” reforms found that a number of gaps need to be addressed to fully realize the benefits of the resolution reforms. Looking ahead, emerging themes in resolution planning relate to digital innovation, including in relation to reliance on third-party service providers and cloud services and the need to assess resolvability of non-traditional market participants. The FSB has also published the data underpinning the Resolution Reform Index which is used in Graph 5 of the Resolution Report. The index illustrates the progress of FSB jurisdictions in adopting comprehensive bank resolution reforms since the global financial crisis. A detailed description of the RRI can be found in Annex F of the March 2021 FSB Report on the Evaluation of Too-Big-To-Fail Reforms. |
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Disclaimer
This Reporter is prepared as a service for our clients. It is not intended to be a complete statement of the law or an opinion on any subject. Although we endeavour to ensure its accuracy, no one should act upon it without a thorough examination of the law after the facts of a specific situation are considered.
