Canada's Office of the Superintendent of Financial Institutions opens consultations on LAR, ILAAP and MCT and lifts the LICAT stop-loss reinsurance cap

Canada's Office of the Superintendent of Financial Institutions (OSFI) released a Spring 2025 Quarterly Release Day package launching three public consultations on liquidity and capital guidance and issuing a regulatory notice that adjusts the Life Insurance Capital Adequacy Test (LICAT) for life insurers. A 60-day consultation on proposed changes to the Liquidity Adequacy Requirements (LAR) Guideline includes new funding categories for deposits involving non-bank financial intermediaries and for products such as structured notes, and builds on earlier intraday liquidity updates including a new Intraday Liquidity Regulatory Return developed with the Canadian Bankers Association. A 90-day consultation on a discussion paper sets out a more structured supervisory review process for Pillar 2 liquidity and funding risk in Canadian deposit-taking institutions through an Internal Liquidity Adequacy Assessment Process (ILAAP). A separate 90-day consultation on proposed updates to the Minimum Capital Test (MCT) Guideline would simplify guidance on insurance risk for unexpired coverage, update regulatory adjustments to net assets available for insurance receivables, and update capital confirmation requirements for user fees. The LICAT notice removes the 5% cap on the reduction in Tier 1 capital deduction for stop-loss reinsurance and aligns capital treatment for unregistered reinsurance of segregated fund guarantees with other products. OSFI will hold a virtual Industry Day on 6 June 2025 covering the released items and providing an opportunity for questions.