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The global regulatory environment for banks is likely to get tougher in the year ahead, with Canada possibly tightening its mortgage stress test requirements, according to a new report from Fitch Ratings.

The rating agency said that, as the regulatory environment returns to pre-pandemic conditions in 2022, it expects to see a “gradual tightening” of global bank regulations.

In particular, Fitch said that it expects macroprudential policies to be reinstated in some jurisdictions, while the rules to implement the final Basel III capital regime in developed markets are finalized.

For the U.S. and Canada, bank regulation is already “returning to pre-pandemic norms,” Fitch said. In the year ahead, it expects regulators to focus on the implementation of the final Basel III regime, and financial stability issues that pre-date the pandemic.

For Canadian policymakers that means rising home prices, which represent a growing risk that, Fitch said, increases “the likelihood of federal policy to dampen demand, perhaps including an adjustment to the B-20 mortgage underwriting stress test.”

In the meantime, the final Basel III reforms are to be implemented by the Office of the Superintendent of Financial Institutions (OSFI) over the next couple of years. Most of the remaining requirements will take effect in the second quarter of fiscal 2023, and revisions to the market risk and credit valuation adjustment regimes are slated for 2024.

New guidance from OSFI on dealing with technology and cyber risk is expected to be finalized in 2022 as well, Fitch said.

“Beyond prudential regulation, the Liberal government has singled out banks for higher taxation, with a forthcoming 3% additional tax surcharge on profits over $1 billion, plus a temporary ‘recovery dividend’ tax,” it noted.

In the U.S. Fitch expects to see regulators stepping up their surveillance of risks that may arise from the demise of the LIBOR benchmark.

“Supervisors in both countries will continue to apply strict standards for risk monitoring, compliance, conduct, and financial crime,” it added.

Globally, Fitch also expects an increased supervisory focus on cyber, climate and crypto-asset risks led by the umbrella group of global banking regulators, the Basel Committee on Banking Supervision.

In the first half of 2022, Fitch expects the Basel Committee to publish a report evaluating the efficacy of the Basel reforms during the pandemic and their interaction with other post-crisis reforms.

“The role and usability of capital and liquidity buffers will be revisited, alongside unintended consequences of distribution restrictions linked to additional Tier 1 instruments,” it said.

“This could lead to increased use of countercyclical buffer requirements, which can be released in a downturn, at the expense of less flexible systemic risk buffers or domestic systemically important bank (D-SIB) buffers, over the medium term,” it suggested.

Fitch also expects the Basel Committee to review the extent to which climate-related risks can be addressed within the global capital regime, and that it will finalize its principles for supervising climate-related financial risk.

Additionally, it’s expected that the new International Sustainability Standards Board (ISSB) global sustainability and financial reporting standards could be finalized in the second half of 2022, Fitch suggested.

In terms of crypto regulation, Fitch said that it expects the Basel Committee to take another crack at possible prudential rules for crypto exposures.

“A second consultative proposal for the prudential treatment of cryptoasset exposures is expected by mid-2022, following a push-back from the industry against the initial 1,250% risk-weight proposal for cryptocurrencies without a stabilization mechanism such as bitcoin,” it said.

The regulators could also produce proposals for regulating systemic global technology firms, Fitch suggested.