OSFI opts for standardised approach transition year ahead of SMA
- 25 July 2019
In an announcement on 18 July 2019, Canada's Office of the Superintendent of Financial Institutions (OSFI) published its plans for the transition of its capital regime from the advanced measurement approach (AMA) to the new Basel III/IV standardised approach (SMA).
Transition year in 2020
In a note that was light on detail, the most significant development is the introduction of a transition year to run in 2020, during which banks will revert to the Basel II standardised approach, prior to the introduction of the SMA in 2021.
- Up to Q4 2019
- Q1 2020 – Q4 2020
- Current (Basel II) standardised approach
- Q1 2021 onwards
- SMA – Basel III/IV approach
Expectations remain high on the op risk framework
In line with its 2016 guidelines “E-21 operational risk management”, OSFI will continue to expect “more complex” banks to use internal event data, external event data and scenario analysis within their operational risk management frameworks.
The remaining element of the AMA framework, the BEICF, will no longer be needed. OSFI stated that “banks currently using the AMA approach will no longer be required to use Business Environment and Internal Control Factors in their operational risk management frameworks after Q4 2019”. However, a reference to “Risk and Performance Indicators” in the E-21 guidelines suggests the exclusion may mostly be semantic.