FRSGlobal : Risk Analysis and Regulatory Reporting

Regulators in Canada

• The Office of the Superintendent of Financial Institutions (OSFI)
• The Bank of Canada

FRSGlobal in Canada

Hit by the global meltdown, the Canadian economy experienced a sharp recession toward the end of 2008 Canada saw its first fiscal deficit in 2009. after 12 years of growth.

However, due to the country's tradition of conservative lending practices and strong capitalization Canadian banks emerged as one of the strongest in the world.

The Bank of Canada is the nation's central bank. Its main areas of activity are monetary policy, supervision on the effective funds-management services for the federal government, the Bank, and other clients.

In general, the main challenge that Canadian financial institutions and businesses face is the adaption of IFRS standards as all business will have to comply with this new requirement in 2011.

Regulatory Environment — Canada

Statutory

Financial reporting
These reports are required by the Office of Superintendent of Financial Institutions (OSFI), an independent agency of the government of Canada and the primary regulator of financial institutions. The FRSGlobal solution covers statutory reports as required by OSFI on balance sheet information, charge and allowances for impairment, loans (mortgage, non mortgage and loans in arrears), pledging and repos, impaired assets, income statements, interest rate risk, new lending etc.

Bank of Canada reporting
FRSGlobal provides standardised reports on average assets and liabilities, securities, regional distribution of selected assets and liabilities, selected structural statistics etc. in compliance with requirements from the Bank of Canada.

Prudential

Basel II reporting
FRSGlobal covers both the standardised and advanced approaches for Basel II reporting. The capital adequacy reporting module for the Canadian Basel II framework comprises credit, market, and operational risk. It does so following the methodologies and calculations described in the OSFI’s Capital Adequacy Requirements (CAR) Guidelines A-1 (the “guideline”) and the instructions to the OSFI Capital Adequacy Return.

New Credit Risk reporting FRSGlobal’s New Credit Risk (NCR) reporting module classifies credit exposures in risk rating systems and industry. Additionally, NCR specifies the delinquency buckets by business line. NCR follows the methodologies described by the OSFI.

Statistical

Reporting for Statistics Canada Statistics Canada is a ministry of the Federal Government and is Canada’s central statistical agency legislated for the whole of Canada including all provinces and territories. The FRSGlobal solution covers quarterly financial statistics on all transactions of financial institutions in Canada. Statistics Canada uses this information to build the gross domestic product (GDP) and provide information to the market on specific topics.

Transactional

Derivative disclosure reportingAll financial institutions including banks, bank holding companies, trust and loan companies, life insurance companies and insurance need to disclose certain derivative related amounts that are reported to OFSI to check the capital requirements guidelines. Apart from the derivative instruments, financial institutions also need to disclose non-financial instruments such as commodities contract. The guidelines are as per the IFRS 7 standards and all financial institutions need to follow them from January 1, 2011.

What’s Coming Up : Canada

Basel Capital Adequacy Reporting (BCAR)

Canadian Basel Capital Adequacy Reporting (BCAR) for 2012 reflects removal of the Interim Approach for calculating risk-weighted assets, consistent with the temporary nature of this methodology as it was described in the Annex to the BCAR instructions. It should be noted that removal of the Interim Approach for calculating risk-weighted assets does not preclude an IRB institution from continuing to use this approach, if applicable, in its calculation of the risk-weighted asset floor.

Changes for 2012 also include putting into effect Securitization and Market Risk revisions that were reflected in BCAR schedules for 2011, but whose implementation was delayed to 2012. The Market Risk schedule also includes additional modifications that will be in effect during the interim treatment period Q1 2012 to Q4 2013.

The two most significant changes proposed for 2012 are removal of Foundation IRB schedules, to streamline the return, and the introduction of a tabular memo item on each IRB schedule to capture information regarding guaranteed exposures whose risk-mitigating impact has been reflected through an LGD adjustment rather than through the PD substitution approach.

Minimum Capital Test/ Branch Adequacy of Assets Test Audit Requirements (MCT/BAAT)

The Office of the Superintendent of Financial Institutions Canada (OSFI) postponed the implementation of audit requirements for MCT/BAAT by one year those changes which were scheduled to be reported for the fiscal year beginning on or after January 1, 2011.

Property & Casualty (P&C) insurance companies are required to submit a report to the OFSI on or after January 1, 2012. An annual audit of the MCT/BAAT will be required to be filled by P & C insurance companies for both the current and previous year.

New Reports

The following is a summary of the data-point changes that are scheduled for Q1 2012

• 14,613 new data-points resulting from the addition of a memo item in table form on each IRB schedule. The memo item captures supporting information from those institutions that use LGD adjustment, rather than the substitution approach, to reflect guarantees.
• 14 data-points removed in related schedules, together with associated changes in validation rules and the instructions, including removal of the Annex.
• 12,464 data-points removed resulting from deletion of FIRB-specific schedules 15A – 21. This change streamlines the return. For wholesale exposures (Corporate, Sovereign, Bank, etc.), institutions using the Foundation IRB approach will complete the same schedules, 22A – 28, as institutions using the Advanced IRB approach. These schedules have been renamed to refer to “IRB”.
• 2 new data-points on Schedule 2 Summary of Risk-weighted Assets, for IRB institutions to indicate whether they have used the Foundation or the Advanced Approach for completing schedules 22A – 28.

BCAR (Standardized and Advanced Approach)

FRSGlobal provides a systems platform to facilitate Basel II Capital Adequacy Reporting (BCAR) for the Standardized and Advanced IRB Basel II methodologies. Canadian banks pursuing the Basel II Framework must adhere to a compliance approach geared to the respective regulatory guidance outlined by OSFI. Our BCAR solution supports all of the summary and portfolio level reporting for credit risk, market risk and operational risk deliverables. This solution also enables banks to have access to each reporting schedule that is required by OSFI, drill down capability for all of the reporting schedules, the ADT delivery file as well as all of the inter and intra schedule validation checks. This assures the conditions for full regulatory compliance.

IFRS

Banks and financial institutions are faced with a remarkable challenge as worldwide accounting standards evolve. In Canada, the transition to IFRS for Federally Regulated Financial Institutions (FRFIs) is closely monitored by the Regulator (OSFI). As the April 25, 2008 OSFI advisory states, all Financial Institutions must to adopt IFRS for fiscal years beginning on or after January 1, 2011. No early adoption is allowed for FRFIs in Canada. In the meantime all institutions must submit a semi-annual progress review on their plan to adopt IFRS to OSFI within 30 days of the end of the period. FRS Global is ready to support the FRFIs' adoption efforts during the transition period.

The FRSGlobal solution not only helps meet the full requirements of IFRS, but also to gain greater insight into organizational strengths and exposures.

NCR

FRSGlobal provides a systems platform to facilitate New Credit Risk (NCR) reporting for the Standardized and Advanced IRB Basel II methodologies. Canadian banks pursuing the Basel II Framework must adhere to a compliance approach geared to the respective regulatory guidance outlined by OSFI. The NCR reporting is designed by OSFI to replace the granular level credit risk data traditionally sought. Our NCR solution supports all of the summary and the portfolio level and transactional level reporting for the credit risk data. This solution also enables banks to have access to each reporting schedule that is required by OSFI, drill down capability for all of the reporting schedules, the ADT delivery file as well as all of the inter and intra schedule validation checks. This assures the conditions for full regulatory compliance.

Risk Platform

FRSGlobal provides to financial institutions in Canada a comprehensive risk platform that incorporates a calculation engine. Our RiskPro solution covers Asset Liability Management (ALM), liquidity risk management, market risk analysis, and credit risk analytics including exposure analysis, value at risk, funds transfer pricing, dynamic simulation, limits, historisation, Basel I and II, risk-adjusted performance analysis, credit exposure, credit loss and IFRS 39.

SRDM

FRSGlobal provides a systems platform to facilitate a Statutory Reporting Data Mart (SRDM) for standard regulatory reporting. Domestic, Foreign Banks and Insurance Companies operating in Canada must wholly or partially adhere to regulatory guidelines outlined by regulators such as OSFI, Bank of Canada and Statistics Canada. This solution enables banks and insurance companies to comply with the regulators in a more efficient and cost effective manner; not only does our solution include the major returns, but it also include validation rules that are associated with each return and are updated whenever there are regulatory changes made to the return and validation rules. Moreover, the solution's security and audit functions allow banks and insurance companies to keep an audit trail that are typically required by an institution's audit department.

The ADT file format, generated for each return, comply with regulatory requirements and enables institutions to quickly submit and re-submit data to the regulators. The solution's inclusion of standardized reports, validation rules, audits, and a reliable delivery mechanism ensures that banks and insurance companies can operate in Canada with the peace of mind that they are in full compliance.