A practical approach to validating a pd model

Posted by / 15-Apr-2019 09:54

A practical approach to validating a pd model

This Guideline provides application guidance to Federally Regulated Entities (FREs) applying International Financial Reporting Standard 9 Financial Instruments (IFRS 9), and is effective when IFRS 9 is applicable to FREs.For the purposes of this Guideline, FREs include: Canadian legislation governing FREs permits OSFI to promote the adoption by management and boards of FREs of policies and procedures designed to control and manage risk.Section 2.1 is intended to set out supervisory guidance on accounting for expected credit losses (ECL) that does not contradict the accounting standard.Representatives of the International Accounting Standards Board (IASB) have been provided with the opportunity to comment on the Basel Committee's Guidance on credit risk and accounting for ECL, which section 2.1 reproduces.

Principle 3: A bank should have a credit risk rating process in place to appropriately group lending exposures on the basis of shared credit risk characteristics.This requirement does not apply to life insurers’ loans if they would have otherwise been classified as Fair Value through Other Comprehensive Income.OSFI's expectations on the application of the IFRS 9 Expected Credit Loss (IFRS 9 - ECL) accounting requirements for Deposit-Taking Institutions in the business of lending are provided for the following institutions: No supervisory impairment guidance governing the application of IFRS 9 - ECL is provided for Deposit-Taking Institutions not in the business of lending, Foreign Bank Branches, and Federally Regulated Insurers.Experience indicates that a significant cause of bank failures is poor credit quality and deficient credit risk assessment and measurement practices.Failure to identify and recognise increases in credit risk in a timely manner can aggravate and prolong the problem.

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OSFI believes that the expectations set out in this Guideline will not impair an FRE’s ability to obtain an audit opinion that states that the financial statements are in accordance with Canadian generally accepted accounting principles, the primary source of which is the CPA Canada Handbook.