Government of Canada
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Staff image Julie Dickson
Superintendent of Financial Institutions
Photo: Julie Dickson, Superintendent of Financial Institutions

The past year has seen a continuation of historically low interest rates and generally weak economic conditions, especially in advanced economies. We are now in the sixth year of a challenging and uncertain global economic environment. While Canadian financial institutions have performed well in this environment, there are growing indications that low interest rates are affecting the pricing of financial assets and the risk appetites of financial institutions and pension plans. In response to these pressures, financial institutions, pension plans, and regulators and supervisors must remain vigilant. OSFI and other international regulators have agreed to a series of enhanced rules and standards to strengthen global financial stability, including the Basel III reforms on capital and liquidity, enhanced disclosure practices by institutions, and recovery and resolution planning by institutions. But, key to the safety and soundness of any financial system are the day-to-day implementation of these standards and the day-to-day management of risk by the financial institutions themselves.

Within the uncertain global environment, the Canadian financial sector remains respected for stability and prudence. This reputation is well earned. Canada’s financial institutions have not required the taxpayer-funded bail-outs that occurred in other jurisdictions. However, as I have said many times before, we cannot be complacent. For this reason, OSFI continues to focus its efforts on issues that could adversely affect the continued safety and soundness of the Canadian financial system, and to take early action when warranted. A strong supervisory regime, where action is taken early to address problems, contributes to public confidence in Canada’s financial system.

In 2012-2013, OSFI introduced or finalized several guidelines intended to promote and maintain confidence in Canada’s financial system. These included: a revised Corporate Governance Guideline that sets out expectations for boards of directors and senior management in identifying and managing the risks being undertaken by financial institutions; a new Mortgage Underwriting Guideline that lays out principles for prudent mortgage underwriting; and revised capital adequacy requirements to implement Basel III reforms, including additional requirements for identified domestic systemically important banks. We also published a framework for life insurers that provides a road map of future regulatory changes anticipated in that sector.

Domestically, OSFI worked with the Department of Finance, the Bank of Canada, the Canada Deposit Insurance Corporation and the Financial Consumer Agency of Canada to address the issues and challenges facing the financial sector, and to refine regulatory requirements that promote sound practices and procedures to manage risk.

OSFI’s active participation in international forums allows us to share Canadian perspectives and help shape international rule setting. For example, during the year under review, OSFI officials contributed to the ongoing activities of the Financial Stability Board (FSB), the Basel Committee on Banking Supervision (BCBS), the International Association of Insurance Supervisors, and the Senior Supervisors Group. Specific initiatives in 2012-2013 included our work on the global thematic review of risk governance conducted by the FSB, our co-chairing of the BCBS review of risk weights used by banks for their trading book assets, and our chairing of the FSB Supervisory Intensity and Effectiveness group.

OSFI employees take pride in knowing that their work has directly benefitted Canadians. As the global financial crisis has shown, a strong financial system is important for economic growth. A strong system means that financial institutions can continue to lend to Canadians, provide other needed financial services and be important investors in the economy.

While this annual report aims to capture last year’s accomplishments, OSFI is always looking forward and several initiatives are already underway. A major project for OSFI this coming year is the International Monetary Fund’s assessment of the stability of the Canadian financial system (under the Financial Sector Assessment Program). This important international peer review of Canada’s financial sector will involve governments and regulatory agencies at the federal and provincial levels and private sector institutions, including an assessment of OSFI’s supervisory practices. The outcomes from the review will help Canada’s financial system to remain strong and stable. An issue of increasing concern is cyber risk; to address this, OSFI has increased supervisory resources in its operational-risk area and will be conducting in-depth reviews of institutions’ current cyber protection practices.

All of the achievements I have mentioned are due to OSFI employees continuing to work with focus, dedication and expertise. Ted Price, Deputy Superintendent, has announced his retirement and I would like to thank him for his 12 years of dedicated service. His contribution to the Canadian and international supervisory community will greatly benefit the next generation of supervisors. I would also like to welcome Andrew Kriegler to OSFI as the new Assistant Superintendent of the Supervision Sector. I expect that he will find his work here as demanding as it is rewarding.

Julie Dickson