The Office of Superintendent of Financial Institutions (OSFI) stated recently that it is in the process of revising its capital requirements for operational risk applicable to deposit-taking institutions (DTIs) to reflect the final Basel III revisions published by the Basel Committee on Banking Supervision in December 2017. OSFI confirmed that the implementation of the revised Basel III operational risk capital requirements in Canada will move from Q1 2021 to Q1 2022 to coincide with the implementation of the final Basel III credit risk and leverage ratio requirements. See our previous post for further details on the implementation of the final Basel III credit risk and leveraged ratio requirements.

This adjustment provides OSFI and reporting entities with additional time to clarify reporting instructions in order to ensure a consistent interpretation of the revised requirements. The new timeline also aligns with the expected implementation date of the revised capital and liquidity requirements for small and medium-sized institutions.

In the interim, DTIs that previously used the Advanced Measurement Approach for operational risk capital purposes are expected to continue to use the Basel III Standardized Approach until Q1 2022. Other institutions are expected to continue their current practice (i.e., either Standardized or Basic Indicator) until Q1 2022.

According to OSFI, further consultation regarding the domestic implementation of the final Basel III reforms for operational risk, credit risk and the leverage ratio requirements, will take place in late spring 2020.

The author would like to thank Bikaramjit S. Sandhu, articling student, for his contribution to this article.