AMEIS RegFacts | March 2023

ClimateRisk

ClimateRiskManagement:OSFIFinalisedGuidelineB-15

Released on March 7 by the Office of the Superintendent of Financial Institutions (OSFI), the New Guideline sets out OSFI expectations concerning the management of climate-related risks

PRINCIPLES-BASED EXPECTATIONS

OSFI sets principles-based expectations that will help manage climate-related risks, some of which are highlighted hereunder.

Governance

Implementation of adequate governance and accountability mechanisms

Incorporation of the implications of physical risk from climate change and the risks associated with the transition of GHG economy to the entity‘s business model and strategy

Development and implementation of a Climate Transition Plan

Risk Management

Risk identification (e g identify, collect, and use reliable, timely, and accurate data pertaining to physical risks), measurement (of the current and potential future impact of climate-related risks on its portfolio of exposures) and management (through the internal control framework)

Risk monitoring and reporting: develop capabilities to aggregate climate risk data to identify and internally report on climate-related exposures

Climate scenario analysis and stress testing

Use climate scenario analysis to assess the impact of climate-related risks on the company’s risk profile, business strategy, and business model

Consideration of climate scenarios that encompass both physical and transition risks, and the potential interplay between these two types of risks

Capital and liquidity adequacy

Requirement that a financial institution have sufficient capital and liquidity buffers for its climaterelated risks

Climate-related financial disclosures

Disclosure of relevant information (e.g. current and potential future impact of climate-related risks and opportunities on its markets, businesses, corporate or investment strategy, financial statements and reports, and future cash flows )

Disclosure of specific and comprehensive information (e g company’s exposure to current and potential future impacts of physical and transition risks; the potential nature and size of such impacts )

Disclosure of verifiable and reliable information (e g objective data and use best-in-class measurement methodologies )

This finalised Guideline builds on the various feedback received by OSFI during the consultation phase (see our previous article here)

The implementation period will be phased-in over a period of 3 years starting from 2024.

RiskManagement

OSFISetsPrinciplesforCultureandBehaviourRiskManagement

On February 28, the Office of the Superintendent of Financial Institutions (“OSFI”) published for consultation a Draft Culture and Behaviour Risk Guideline (the Draft Guideline).

PRINCIPLES

OSFI outlines that : “Culture can influence sound decision-making, prudent risk-taking and effective risk management, which can materially support or weaken the resilience of Federally Regulated Financial Institutions (FRFIs)” .

As such, OSFI’s expectations for FRFIs are embedded in a set of principles, notably:

Desired culture and expected behaviours should be designed to align with the purpose and strategy of the FRFI and governed through appropriate structures and frameworks

Leaders, at all levels, should consistently promote and reinforce the desired culture and expected behaviours through their words, actions and decisions

Talent and performance management strategies and practices should promote and reinforce the desired culture and expected behaviours

Compensation, incentives and rewards should promote and reinforce the desired culture and expected behaviours

FRFIs should proactively monitor for, assess, and act to address risks related to culture and behaviour that may influence their resilience.

Comments may be submitted by May 31, 2023.

Settlementcycle

SECShortensSettlementCycleForBroker-Dealers

On February 15, 2023, the Securities Exchanges Commission (SEC) adopted Rules amendments to shorten the standard settlement cycle for securities transactions to T+1

NEW REQUIREMENTS

Under the changed and new requirements, brokers-dealers must:

Shorten the standard settlement cycle for most securities transactions from two business days after trade date (T+2) to one (T+1); unless the parties expressly agree otherwise

Shorten the separate standard settlement cycle for firm commitment offerings priced after 4:30 p.m. from four business days after trade date (T+4) to (T+2); unless the parties expressly agree otherwise

Improve the processing of institutional trades through new requirements related to same-day affirmations through relevant written agreements or written policies and procedures (that identify and describe any technology systems, operations, and processes used; set target time frames on trade date for completing the allocation, confirmation, and affirmation for the transaction or describe how a brokerdealer plans to identify and address delays )

The Canadian Securities Administrators (CSA) published proposed rule amendments in December 2022 to support the adoption of T+1 The transition to T+1 is scheduled to occur at the same time in 2024 that the United States moves to T+1 (read our previous article here)

The changes aim at reducing risk, promoting investor protection, and increasing operational and capital efficiency.

The rules will be effective from May 28, 2024.

MarketBenchmarks

CSAUrgesMarketParticipantstoPrepareforCDOR’sCessation

Released on February 23 by the Canadian Securities Administrators (CSA) Staff Notice 25-309 Matters Relating to Cessation of CDOR and Expected Cessation of Bankers’ Acceptances provides some guidance to market participants on the forthcoming cessation of the Canadian Dollar Offered Rate (CDOR)

TRANSITION ISSUES

The Staff Notice focuses on “certain developments and transition issues” related to the benchmark, this includes:

Expectation that market participants will use Canadian Overnight Repo Rate Average (CORRA) as the alternative rate for most instruments that currently reference CDOR

Inclusion of robust fallback language in any new instrument that will reference CDOR past its cessation date Market participants may refer to Canadian Alternative Reference Rate (CARR) recommended fallbacks or ISDA recommended fallbacks

For existing instruments, market participants, including parties to derivatives that use CDOR as a reference rate, are expected to have in place transition arrangements that may include the adoption of a replacement rate

Requirement for certain market participants to take appropriate action to prepare for the cessation of BAs as a result of CDOR cessation

SEDAR+:CSARemindsFirmsofJune13Deadline

The Canadian Securities Administrators (CSA) launches SEDAR+ on June 13, 2023 This new, web-based technology platform will be used by market participants to file, disclose and search for information in Canada’s capital markets

To transition to the new platform, CSA reminds filing organizations they have until April 14 to onboard in advance Beyond this date, filers will need to register for an account once SEDAR+ is live

Read AMEIS’ note on the phased-in transition to SEDAR+

ICOApprovesFourthSetofGDPRCertificationScheme

On March 3, the UK’s Information Commissioner’s Office (ICO) announced its approval of the fourth set of UK GDPR Certification scheme, aimed at providing requirements for providers processing personal data in relation to providing training and qualifications to individuals

The previously approved schemes cover data processing activity of:

Data sanitisation of storage media service, including all systems and processing relating to ICT asset recovery

Age assurance, such as service providers for proof-of-age ID, age check, electronic ID validation, and analytical and profiling services

Information society services, in the context of the application of the Code of Practice for the Age Appropriate Design of Information Society Services (referred to generally as the “Children’s Code”)

To view ICO’s Certification Schemes register : https://ico.org.uk/for-organisations/certification-schemesregister/

SECReleases2023ExaminationsPriorities

On February 7, the Securities and Exchange Commission (SEC) announced its 2023 examination priorities for its Division of Examinations

New areas of focus include compliance with:

Advisers Act Rule 206(4)-1 (Marketing Rule)

Investment Company Act Rule 18f-4 (Derivatives Rule)

Investment Company Act Fair Valuation Rule 2a-5

Examination priorities will continue focus on:

Registered Investment Advisors (RIAs) to private funds

Standards of conduct - Regulation Best Interest, Fiduciary Duty and Form CRS

Environmental, Social, and Governance (ESG) Investing

Information security and operational resilience, in particular the practices to prevent interruptions to mission-critical services and to protect investor information, records and assets

Crypto assets and emerging financial technology, including mobile apps and automated digital investment advice

Governance, operations and compliance practices of investment advisors and investment companies, mutual funds and ETFs

Compliance and supervisory programs of broker-dealers and exchanges

Core risks, processes and controls of clearing and settlement agencies

Written policies and procedures of regulation systems compliance and integrity

Risk-based oversight of Financial Industry Regulatory Authority (FINRA) and Municipal Securities

Rulemaking Board (MSRB)

Compliance with Anti-Money laundering (AML) obligations

Transitions away from the London Interbank Offered Rate (LIBOR)

FSBSharesRoadmapforEnhancingCross-borderPayments

On February 23, the Financial Stability Board (FSB) published the G20 Roadmap for Enhancing Crossborder Payments.

The focus of the next phases of work is guided by three priority themes, supported by actions to achieve target objectives:

Payment system interoperability and extension

Convening central bank operators in a community of practice on payment system interoperability and extension

Fostering fast payment system (FPS) interlinking across borders

Finalisation of requirements for cross-border payment service level agreements/schemes

Legal, regulatory and supervisory frameworks

Improving consistency of bank and non-bank regulation and supervision

Enhancing information to end-users

Updating the application of AML/CFT rules

Cross-border data exchange and message standards

Enhancing the interaction between data frameworks and cross-border payments

Finalising the ISO 20022 harmonisation requirements and promoting their real-world implementation

Improving API harmonisation for cross-border payments use

Exploring enhanced use of the LEI in cross-border payments

5. 6. 7.

In addition, the actions to address all priority themes, include:

Convening a Payments Summit with senior industry representatives

Convening industry taskforces for ongoing industry engagement

Monitoring and progress reporting on the Roadmap to the G20

Technical assistance to help take forward priority themes

Public sector outreach through engagement at the global and regional levels

UpcomingRegulatoryDeadlinestoWatch

Date

07/04/2023

17/04/2023

30/04/2023

Issues to Watch

UK’s HM Treasury Consultation on the Payment Services Regulations closes for comments

US Security and Exchange Commission is proposing amendments to the Privacy Act (File number S7-03-23) and comments may be submitted April 17

Comment period closes for UK’s HM Treasury Consultation on the future financial services regulatory regime for cryptoassets

ProductCorner

CDORandCORRA:Quésaco?

The Canadian Dollar Offered Rate (CDOR) is a domestically important interest rate benchmark that serves various purposes including to:

Calculate the floating-rate component of certain over-the-counter (OTC) and exchange-traded derivatives (ETDs),

Determine interest payments on certain floating-rate notes (FRNs) and other securities, and Determine the base interest rate on certain loan agreements between corporate borrowers and banks.

In 2021, CDOR was designated as a critical benchmark and an interest rate benchmark under Multilateral Instrument 25-102 Designated Benchmarks and Benchmark Administrators (MI 25-102)

On May 16, 2022, Refinitiv Benchmark Services (UK) Limited (RBSL), the designated benchmark administrator of CDOR, announced that the benchmark will cease to be published on June 28, 2024 The decision to cease CDOR followed the Canadian Alternative Reference Rate working group (“CARR”)’recommendation to permanently cease the calculation and publication of CDOR after June 30, 2024, as “CARR’s analysis clearly demonstrated that certain aspects of CDOR’s architecture will pose risks to its future viability and robustness ”

The Canadian Overnight Repo Rate Average (CORRA), measures the average cost of overnight general Government of Canada collateral repo transactions and is a representative measure of overnight funding rates. CORRA is a risk-free rate as it normally includes no credit risk component. CORRA is based on actual observed market transactions and thus is fully transparent.

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