IIAC provides update on NSFR and budget developments in Canada

The Investment Industry Association of Canada published its monthly update on regulatory and policy developments shaping industry supervisory, operational and business practices.

The Federal Budget released in late February proposes changes to existing anti-avoidance rules meant to prevent Canadian banks and other financial institutions from gaining a tax advantage through sophisticated financial instruments such as Synthetic Equity Arrangements, Securities Lending Agreements and Structured Share Repurchase transactions. These measures build on those already introduced in Budget 2015 targeting SEA and dividend rental arrangement rules.

Budget 2018 also proposes to introduce legislative amendments that would implement a resolution framework for Canada’s systemically important financial market infrastructures such as the Canadian Depository for Securities and Canadian Derivatives Clearing Corporation. The objectives of the FMI resolution regime are to maintain the criticial services of the FMI, promote financial stability, and reduce potential public exposure to loss.

In early February, the Office of the Superintendent of Financial Institutions (OSFI) announced its intention to extend its implementation timeline of the Net Stable Funding Ratio (NSFR) to 2020. While NSFR is a key Basel Committee reform to promote a more resilient banking sector, an area of considerable attention by IIAC members has been the potential effects of the NSFR on collateral management and liquidity in our capital markets.

The delay gives OSFI the opportunity to undertake additional stakeholder consultations to ensure domestic implementation is appropriately calibrated for the nuances of the Canadian market. The delay will also help market participants digest the NSFR requirements and incorporate necessary changes to their business and operational practices. OSFI’s announcement better aligns Canada’s NSFR implementation with progress at the international level, given that few jurisdictions appear ready or determined to implement their own frameworks before then.

Read the full report

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