Canada’s banking regulator has opened a 90-day consultation in Ottawa on proposed revisions to the Capital Adequacy Requirements (CAR) Guideline, the framework that determines how banks calculate regulatory capital for credit, market and operational risk. The review comes at a moment when funding conditions are tight across global markets and supervisors are reassessing whether capital requirements still reflect the economic substance of different exposures. 

OSFI’s draft indicates an effort to maintain prudential strength while improving clarity and freeing capacity that banks can use to extend credit, a message the regulator has emphasised in its recent public communication. The backgrounder accompanying the draft is also published by OSFI and frames the changes as part of a broader move toward more detailed and risk-aligned capital rules.

Reducing corporate risk weights to reflect underlying credit quality

A central component of the consultation is OSFI’s proposed recalibration of risk weights for corporate exposures under the Standardised Approach. A risk weight determines how much capital a bank must hold for every dollar of exposure; reducing that weight lowers the capital charge and can increase lending capacity. 

OSFI proposes lowering the risk weight applied to Corporate Small and Medium Size Enterprise exposures from 85 to 75 per cent, regardless of whether the exposure meets the definition of regulatory retail. It also proposes reducing the risk weight for unrated corporates that qualify as investment grade from 150 to 135 per cent. 

OSFI’s backgrounder explains that these revisions are intended to be “more detailed, clear, and closely tied to actual risks,” which implies that some corporate exposures may be attracting capital requirements that are higher than their assessed credit quality.

Although the wider package includes other areas, including real-estate-related capital treatment and monitoring expectations in market risk, OSFI’s revisions to the corporate book stand out as the components most likely to shape lending incentives for businesses and mid-sized corporates.

Offering a CET1 deduction option for 1250 per cent exposures

The draft introduces an alternative capital treatment for exposures that currently receive a 1,250 per cent risk weight. These exposures include certain securitisation positions, equity investments in funds and first-to-default credit derivatives. 

OSFI proposes giving institutions the option to deduct such exposures directly from Common Equity Tier 1 capital instead of applying the full 1,250 per cent weight. 

This option does not alter the level of conservatism built into the framework. Instead, it offers another mechanism for handling high-risk assets that may reduce volatility in total risk-weighted assets, particularly when institutions hold small quantities of these positions. 

Strengthening reporting and capital treatment for synthetic securitisation

The consultation also outlines a more structured approach to synthetic securitisation. Under the draft guideline, originating institutions must notify OSFI of any synthetic securitisation transaction within 30 days of execution and provide the specified information alongside that notification. 

If OSFI later determines that the transaction does not meet the qualifying criteria under the securitisation framework, the institution must reverse any capital benefits recognised. 

This approach reinforces the linkage between capital relief and compliance with technical requirements already embedded in the CAR Guideline. 

Use of ratings

OSFI has clarified how external ratings may be applied in cases where short-term exposures are unrated. The draft confirms that an institution may use an applicable long-term rating for an unrated short-term exposure to an investment-grade entity, provided the use follows the conditions set out in the CAR Guideline. 

The clarification is intended to increase consistency across institutions when mapping exposures to available rating information. 

A consultation framed by resilience and flexibility

The consultation runs until 18 February 2026, with a final version expected in September 2026 and implementation from 1 November 2026 or 1 January 2027, depending on institutions’ financial year-end. OSFI’s direction aligns with a broader pattern in financial regulation – capital frameworks are being examined to ensure that they remain anchored in safety and soundness while reflecting the risk characteristics of modern credit portfolios. 

In much the same way that cross-border finance has shifted from paper-based processes to digital standards and clearer allocation of risk, capital rules are evolving to match how institutions assess and manage exposures in practice.