Pillar 1 capital and liquidity rules for SMSBs
OSFI continues to move towards finalizing draft capital and liquidity requirements for small and medium-sized deposit-taking institutions (SMSBs) by the end of 2020. Subsequent to the publication of its July 2019 discussion paper, Advancing Proportionality, OSFI has made revisions in response to stakeholder feedback. These revisions are summarized in a consultative document on SMSB Capital and Liquidity Requirements that was published by OSFI on January 17, 2020.
Summary of OSFI's proposed revision
In response to stakeholder feedback, OSFI has made the following modifications:
1. Categorization of SMSBs
OSFI proposes three categories for SMSBs:
2. Treatment of credit risk and operational risk
3. Capital Requirements for Non-Lenders (category 3)
OSFI proposes a simplified risk-based capital ratio for non-lenders:
(CET1 capital) / (Total Assets (less deductions from capital) + Operational RWA) ≥ 10.5%
4. Liquidity Requirements
Understanding the impact of Basel IV and Proportionality
KPMG believes that it is important for SMSBs to stay engaged and up to date with the evolution of OSFI's proposed proportionality initiatives. Industry feedback has already resulted in changes to the SMSB segmentation scheme, credit and operational risk approaches, as well as the format of capital and liquidity requirements. Our publication explores these changes in further detail, and identifies the key changes made since the publication of our first article from December 2019.
How KPMG can help SMSB clients with Basel IV Implementation
KPMG can help DTIs implement, interpret and perform gap analyses for the Basel IV regulations and identify synergies and optimization initiatives on the institution's required implementation efforts. KPMG can also provide support across the end-to-end implementation efforts from rules interpretation, data and systems, model development to independent review, and regulatory reporting.
Let's do this.
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