The Office of the Superintendent of Financial Institutions (OSFI) has released Final Guideline E-21 on Operational Risk and Resilience, which outlines expectations for financial institutions to manage and to mitigate operational risks.
The OSFI has simplified the language to make it more accessible and streamlined and to express briefly, clearly, and directly the core expectations for financial institutions, said Tolga Yalkin, the OSFI’s assistant superintendent, at a virtual speech.
The final guideline focuses on ensuring that institutions can withstand, adapt to, and recover from non-financial risks such as cyberattacks, technology failures, geopolitical disruptions, and third-party factors, Yalkin explained during a media briefing.
The OSFI also announced the launch of public consultations on guidelines about the public disclosure of crypto-asset exposures and on updates to the Life Insurance Capital Adequacy Test (LICAT) guideline.
The launch of the consultation on guidelines regarding crypto-asset exposure disclosure is in line with the federal government’s 2023 budget announcement, said the announcement. The guidelines aim to improve transparency in the financial sector by requiring institutions to disclose their exposure to crypto-assets. The OSFI expects to publish relevant crypto-asset regulatory data by 2026.
On the other hand, the LICAT guideline seeks to promote the overall resilience of the country’s financial system by assisting the OSFI in assessing the financial health of life insurers in terms of their capital or margins to support risks. The updates to the guideline include significant changes to the segregated fund guarantee risk section and minor adjustments to other areas, according to the OSFI.
Both public consultations will remain open until Oct. 22, Yalkin said.
New regulatory approach
At the same media briefing, Yalkin also discussed the OSFI’s new approach to regulatory guidance. The OSFI outlined plans to prioritize, update, and consolidate regulatory guidance through quarterly releases.
The OSFI’s new strategy includes three steps: prioritizing policy releases, rescinding outdated guidelines, and bundling relevant guidance for quarterly releases.
“This new standardized approach supports critical financial and non-financial risks to financial institutions identified in our Annual Risk Outlook (ARO),” said Yalkin during the virtual speech. “It will also allow us to be more predictable and transparent in the way we inform our stakeholders and the Canadian public about our work, while streamlining how we release our regulatory guidance.”
The first aspect of the new approach is intended to ensure that the OSFI’s guidance aligns with the most pressing risks identified in its new Supervisory Framework, which came into effect last Apr. 1, 2024.
The second step of the framework focuses on rescinding outdated guidelines and advisories that no longer serve their purpose. This aims to ensure that the OSFI’s guidance stays relevant and fit for the goal of supporting financial stability.
Third, the OSFI will release bundled regulatory guidance every quarter, with the release date occurring in the second month of each quarter. Two weeks after each release, the OSFI will hold industry sessions to provide stakeholders with an opportunity to engage with the changes.
This new approach seeks to improve communication between the OSFI and financial institutions and to ensure timely updates on key regulatory matters and products, including guidelines, consultations, policy papers, letters, industry notices, and pensions guidance.