Summer 2017

Risk and Resilience − Preparing for the Unforeseen − remarks by Assistant Superintendent Jamey Hubbs

On June 8, 2017, Assistant Superintendent Jamey Hubbs delivered remarks to the 2017 Risk Canada Conference in Toronto, on risk in the provision of financial services. Following are some key excerpts:

Financial institutions are faced with a number of new and emerging risks — high consumer debt, record low interest rates, cyber threats, housing market uncertainties and geopolitical pressures, to name a few. In this environment, it is increasingly important for financial institutions to demonstrate that they have the necessary controls in place to manage the unexpected, and that they are well equipped with strong capital and liquidity shock absorbers to withstand a variety of stressed conditions.

When we look at emerging risks, we begin with a market surveillance of the financial industries we regulate, the markets and industries that Canadian financial institutions are most exposed to, and the broader economy outside these markets and sectors.

OSFI’s supervision and risk specialist groups work together to closely monitor this area. We also have a dedicated Risk Surveillance and Analytics team that aggregates information and coordinates the analysis of emerging risks.

Understanding an institution’s capital and liquidity position is central to understanding the risks financial institutions take — and by extension, the best way to mitigate those risks.

One of OSFI’s most important responsibilities is keeping Canada’s capital regime effective and up-to-date. When OSFI sets out to adjust or improve its capital regime, the main objective is always to bolster its safety and soundness, not to target an increase or decrease in capital levels. Proportionality, and a risk-based approach, will always be the lenses through which we look at our capital standards.

Our goal is to set out a framework that encourages institutions to use their capital buffers as the normal first step in the process of recapitalization. Part of our work will be to ensure that banks, regulators and market participants understand our expectations for buffer use.

OSFI remains committed to implementing the net stable funding ratio standard in its Liquidity Adequacy Requirements (LAR) Guideline. We believe that it will complement the shorter-term liquidity metrics that OSFI currently has in place by focusing on a longer-term view of liquidity and funding risk.

It is not always certain which emerging risks or triggers will create substantial disturbances and shocks to the financial system. What is relatively certain, however, is that if controls and risk management in institutions are robust, and strong capital and liquidity shock absorbers are in place, the ability to deal with such events is greatly improved.

View the full remarks.

Assistant Superintendent Carolyn Rogers appears before Senate Committee

On May 17, 2017, Carolyn Rogers, Assistant Superintendent, Regulation, appeared before the Standing Senate Committee on National Finance to explain OSFI’s role as it relates to the real estate market and home ownership.

Ms. Rogers emphasized OSFI’s role as a principles-based regulator, explaining that in most cases, rather than setting very specific and prescriptive rules, OSFI chooses to set out clear principles, generally in the form of published guidelines, to which financial institutions are expected to adhere. She added that through this principles-based approach, OSFI looks not only for compliance against a given rule or standard, but also for whether or not an institution is meeting the intent and spirit of the regulatory expectations. Ms. Rogers further explained that in pursuing its mandate, OSFI works in close collaboration with the other federal agencies and regulators and the Department of Finance, as well as with provincial regulatory agencies.

Ms. Rogers also fielded a range of questions from Senators.

View the full remarks.   

OSFI issues draft revisions to Guideline B-20

On July 6, 2017, OSFI issued for comment revisions to Guideline B-20 – Residential Mortgage Underwriting Practices and Procedures.

Guideline B-20 sets out OSFI’s expectations for prudent residential mortgage underwriting, and is applicable to all federally regulated financial institutions that are engaged in residential mortgage underwriting and the purchase of residential mortgage loan assets – in Canada and internationally.

The proposed revisions are aimed at clarifying and strengthening OSFI’s expectations for residential mortgage underwriting at federally regulated financial institutions. The draft changes to Guideline B-20 encourage increased prudence and underwriting practices that adapt to the dynamic housing market conditions in Canada.  

View the draft revisions.

OSFI issues the draft Total Loss Absorbing Capacity guideline

On June 20, 2017, OSFI released for comment the draft Total Loss Absorbing Capacity (TLAC) guideline, which sets out the framework within which the Superintendent will assess whether a domestic systemically important bank (D-SIB) maintains its minimum capacity to absorb losses.

View the draft guideline. 

OSFI issues the draft 2018 Minimum Capital Test guideline

On June 15, 2017, OSFI released for comment the draft version of its 2018 Minimum Capital Test (MCT).

The draft 2018 MCT includes proposed amendments to the regulatory capital requirements for federally regulated property and casualty (P&C) insurers.

View the draft guideline.

OSFI issues the draft LICAT 2018 guideline

On June 23, 2017, OSFI issued for comment draft revisions to the 2018 Life Insurance Capital Adequacy Test (LICAT) guideline. The revisions reflect feedback and the results of OSFI’s LICAT implementation preparation exercise.

Effective in 2018, the LICAT will replace Guideline A: Minimum Continuing Capital and Surplus Requirements (MCCSR).

View the draft guideline.

OSFI renews its history, in honour of its 30^th anniversary

On July 2, OSFI marked its 30^th anniversary as Canada’s prudential regulatory agency responsible for the regulation and supervision of all banks in Canada, and all federally chartered, licensed or registered insurance companies, trust and loan companies, cooperative credit associations, fraternal benefit societies and private pension plans under federal jurisdiction.

We welcomed this opportunity to update the “Our History” page on our website. The page explains how OSFI came to be, how it grew as Canada’s prudential regulator and what lies ahead.

View OSFI’s “Our History” page.   

Updates from the Private Pension Plans Division

On May 26, 2017, amendments to the 2016 multilateral agreement respecting pooled registered pensions plans (PRPPs) and voluntary retirement savings plans (VRSPs) added the government of Ontario as a party to the agreement and made some administrative clarifications.

On May 29, 2017, OSFI released its biannual newsletter on pension issues. InfoPensions includes announcements and reminders on issues relevant to federally regulated private pension plans, as well as descriptions of how OSFI applies selected provisions of the Pension Benefits Standards Act, 1985, the Pooled Registered Pension Plans Act, their regulations, directives, and OSFI guidance.

On July 17, 2017, OSFI issued a Guidance Note that sets out OSFI’s interpretation and expectations relating to the requirements for the investment option selected by the administrator of a pooled registered pension plan as the default investment option.

View updates from the Private Pension Plans Division.

Updates from the Office of the Chief Actuary (OCA)

On April 27, 2017, the OCA issued Actuarial Study No. 18, confirming that the Canada Pension Plan legislated actuarial adjustment factors are appropriate.

On May 25, 2017, Assia Billig, Director, CPP, OAS, addressed the 12th Pension Experts Meeting on “Pension Measures Against Low Fertility and Population Aging” in Seoul, South Korea.

On June 22, 2017, Chief Actuary Jean-Claude Ménard addressed the Canadian Institute of Actuaries Annual Meeting − “The Canadian Retirement Income System: Successes and Challenges.”

View updates from the Office of the Chief Actuary.

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The OSFI Pillar is published by the Communications Division of the Office of the Superintendent of Financial Institutions Canada.

For more information on the articles in this issue, or to provide feedback, please e-mail OSFI Communications at: communications@osfi-bsif.gc.ca.

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