The Office of the Superintendent of Financial Institutions has issued new guidance on financial institutions’ exposure to, and capital treatment of, securitization.

On June 19, OSFI issued a draft advisory on the issue. Now, following consultation and comments received on the draft, the regulator has issued the final version.

OSFI reports that certain clarifications have been made, but that there haven’t been any substantive changes to its content.

OSFI says that the guidance will contribute to the soundness of financial institutions and the functioning of financial markets, highlighting three themes:

> capital charges for liquidity facilities and other securitization activities need to accurately reflect firms’ risks;

> firms need to carefully assess the risks arising from securitization structures and their assets, and must be cautious about relying on external credit ratings; and

> more capital is required to support complex securitization exposures.

The regulator also notes that the advisory may be updated, or further guidance in this area may be forthcoming, to address changes in international capital rules or market developments. In particular, it is expected that the Basel Committee on Banking Supervision may be issuing guidance in this area in 2009, it notes.

IE