OSFI’s Guideline A, Capital Adequacy Requirements (Banks/T&L;), Guideline A, Minimum Continuing Capital and Surplus Requirements (Life), and Interim Appendix to Guideline A-2 (Banks/T&L;/Life) set out the primary considerations for defining the capital of an institution for the purposes of measuring capital adequacy. In particular, they establish the conditions for recognizing a capital instrument in Tier 1 capital.

OSFI has reviewed a number of Tier 1 capital issues in relation to recent international developments and proposals from federally regulated financial institutions (FRFIs). As a result of this review, OSFI is issuing an Advisory to clarify our practice or amend our capital rules in three specific areas:

1. Treatment of Excess Tier 1-qualifying Preferred Shares;
2. Excess Innovative Tier 1 Instruments and Tier 1-qualifying Preferred Shares Eligible for Inclusion in Tier 1 Capital; and
3. Conversion of Innovative Tier 1 Instruments in the Context of an Unregulated Holding Company.

OSFI plans to incorporate this Advisory in the next revisions of the captioned capital adequacy guidelines.

The Advisory is available in English and French on OSFI’s Internet web site (http://www.osfi-bsif.gc.ca) under the Publications section. It can also be obtained by contacting Mr. Stéphane Dupel, General Services Division, by e-mail at extcomm@osfi-bsif.gc.ca or by facsimile at (613) 952-8219.

Questions regarding the Advisory should be addressed to Mr. Paul Melaschenko, Capital Division, at (613) 990-6429 or by facsimile at (613) 991-6822.