The Office of the Superintendent of Financial Institutions (OSFI) unveiled its new framework for supervision today, signaling a significant overhaul in its approach to overseeing federally regulated financial institutions (FRFIs) and private pension plans.
The introduction of the new framework marks the most substantial transformation in OSFI’s supervisory practices in the last 25 years. Key highlights of the framework include:
– Expanded Risk Rating Scale: OSFI has expanded its 4-point risk rating scale to an 8-point scale, allowing for earlier indications of changes in OSFI’s risk assessment of FRFIs.
– Enhanced Rating Information: FRFIs will now receive more detailed information about the drivers of their risk rating, providing greater clarity and insight into OSFI’s evaluation process.
– Introduction of New Risk Assessment Categories: The new framework introduces additional risk assessment categories, including business risk, financial resilience, operational resilience, and risk governance, integrating climate risk considerations.
The primary goal of the new framework is to provide FRFIs and private pension plans with enhanced rating information tailored to their size and complexity. This, in turn, is expected to facilitate more timely interventions, reduce regulatory burden where appropriate, and enhance understanding of OSFI’s supervisory priorities and expectations.
The development of the new framework involved an extensive process, including benchmarking and international peer reviews. It is set to come into effect in April 2024.
“We are launching a new supervisory framework on April 1, 2024, to ensure a faster, more effective response to critical risks faced by federally regulated financial institutions and private pension plans. The new framework will enhance the transparency of OSFI’s risk assessments and thereby deepen the resilience of the Canadian financial system,” stated Peter Routledge, Superintendent of Financial Institutions.
The introduction of this new supervisory framework underscores OSFI’s commitment to modernizing financial supervision and ensuring the stability and resilience of the Canadian financial system in the face of evolving challenges and risks.
