On October 4, 2023, the Office of the Superintendent of Financial Institutions ("OSFI") released details of a new supervisory framework ("New Framework") that will apply as of April 1, 2024 to federally-regulated financial institutions ("FRFIs") and pension plans. This initiative is part of OSFI's comprehensive "Blueprint" transformation program, and will be the most comprehensive update to OSFI's supervisory framework in the last 25 years. OSFI will publish more information about the New Framework in early 2024.
OSFI has constructed the New Framework to give it the flexibility it considers it needs to respond to the current risk environment, with a particular focus on:
- macro-economic risks that may impact FRFIs and pension plans;
- new business models; and
- new risks, including non-financial risks.
A more analytic and data-driven approach to risk supervision will be an important element of the New Framework, allowing for more timely responses to potential issues.
Expanded Risk Ratings
Under the New Framework, OSFI will supplement its existing intervention stage ratings with three new or expanded ratings:
- A rating based on size, complexity and potential for contagion;
- A "viability risk" rating on an 8-point scale; and
- Specific ratings for business risk, financial resilience, operational resilience and risk governance (for large institutions only).
The switch-over to the New Framework is not expected to have an immediate effect on existing intervention ratings. However, because the New Framework is designed to be more responsive to changes in the risk environment, financial institutions should be prepared for more frequent fluctuations in their ratings – a change that OSFI anticipates will assist the institutions' own efforts to respond more effectively to potential issues.
Enhancing OSFI's Capacity
OSFI's basic approach will continue to be, in OSFI's view, forward-looking and principles-based, but the New Framework includes a review of best practices of prudential regulators in other jurisdictions as well as a Supervision Institute that will focus on skills development for OSFI's supervisory staff, particularly with respect to new tools and technologies.
Going Forward
OSFI is committed to providing more information about timelines and requirements well in advance of the New Framework's April 1, 2024 implementation date, and has released a video discussing OSFI's supervisory priorities. Those interested in learning more may wish to attend a webinar for regulated financial institutions that OSFI is holding on November 2 and 9, 2023.
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