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Authored by:
Mario Schlener, Managing Partner, Risk Consulting
Co-authored by:
Vishal Gossain, EY Canada Risk Analytics and Balance Sheet Management Leader
Varun Paliwal, Risk Transformation Leader, Financial Services
Kenneth Kwon, Manager, Capital Management
The OSFI has issued a guideline for the regulatory treatment of crypto-assets in federally regulated deposit-taking institutions.
The Office of the Superintendent of Financial Institutions (OSFI) has issued a guideline for the regulatory treatment of crypto-assets in federally regulated deposit-taking institutions. The guideline categorizes crypto-asset exposures into simplified and comprehensive approaches and covers considerations such as capital deduction, liquidity treatment and risk management. It takes effect from fiscal Q1 2025.
Below is the scope of OSFI’s proposed guideline:
- The guideline covers crypto-assets, defined as private digital assets using cryptography and distributed ledger technologies (DLT) or similar tech.
- Digital assets represent value for payment, investment or accessing goods/services. Dematerialized securities issued through DLT are within scope (tokenized traditional assets).
- Dematerialized securities managed using centralized electronic registers are not covered.
- Regulatory capital and liquidity requirements of central bank digital currencies (CBDCs) are out of scope.
- "Exposure" includes on-/off-balance sheet amounts with credit, market, operational and liquidity risks.
- Operational risk requirements and risk management apply to banks' crypto-asset activities, including custodial services for client crypto-assets on a segregated basis.
Read the Unlocking the future: OSFI's game-changing
crypto-assets report
Summary
In the rapidly evolving landscape of global banking, financial institutions are actively exploring innovative technological transformations and embracing new assets. The advent of blockchain and cryptocurrency presents a potential paradigm shift in the banking industry, requiring banks to navigate a delicate balance between risk and reward. Currently, many banks worldwide are in the exploratory phase of integrating these assets and technologies. However, clear indications from global and Canadian regulators suggest an imminent transformation in this space. This white paper delves into the regulatory expectations surrounding crypto assets, addressing their impact on regulatory capital, liquidity requirements, and the implementation of sound risk management practices. It provides valuable insights into how banks can adapt to the changing banking landscape and position themselves for success in the upcoming era of digital finance. It takes effect from fiscal Q1 2025.