OSFI defers timelines on HISA ETF guidance

Banking regulator issues additional clarification on liquidity treatment of innovative products

OSFI defers timelines on HISA ETF guidance

The Office of the Superintendent for Financial Institutions (OSFI) has extended its originally announced timelines on guidance for high-interest savings account ETFs (HISA ETFs).

The banking regulator launched a consultation on HISA ETFs and other wholesale products with retail-like characteristics on May 10.

The consultation came as both retail and institutional investors across Canada exhibited increased interest in HISA ETFs, which offer competitive interest rates for potentially low fees.

“In some cases, the liquidity practices related to these products has varied between deposit-taking institutions (DTIs),” OSFI noted in a statement this afternoon.

To create consistency across institutions, OSFI originally called for affected DTIs to align with the Liquidity Adequacy Requirement (LAR) guideline for such products by August 1.

But after it received and reviewed over 175 submissions to its consultation, the regulator pushed back its timeline of expectations.

Now, it’s expecting to come out with further guidance on the liquidity treatment of wholesale funding sources with retail-like characteristics by October.

“Instead of expecting [deposit-taking institutions] to adhere to current guidance on August 1, 2023, OSFI will confirm any changes to the LAR guidelines in October 2023,” OSFI said.

While some innovative funding products such as HISA ETFs exhibit some retail characteristics, the regulator was quick with a reminder that those products are still wholesale funding products that don’t come with fixed terms or deposit insurance protection.

Should OSFI decide to make any changes to its LAR guideline, it expects DTIs to fall align with those adjustments by January 21, 2024.

In the meantime, it said it will expect financial institutions to “prudently manage the risk of liquidity runoffs associated with these products.”

“Clarification on the treatment of HISA ETFs will help ensure risks are managed appropriately,” said Peter Routledge, Superintendent of Financial Institutions. “We will carefully review the feedback we received during our consultation to help us determine the appropriate liquidity treatment for these products in what is a fast-evolving risk landscape.”

As a result of its review, OSFI said, it may decide to confirm a wholesale liquidity treatment for HISA ETFs and similar products – a possibility that the industry should be prepared for.