Oversight of CDOR Benchmark-Setting Submissions

Document Properties

  • Type of Publication: Letter
  • To: Banks submitting rates to CDOR benchmark
  • Date: January 13, 2014

Recently, the international regulatory community turned its attention to weaknesses identified in the determination of some major global financial benchmarks, such as the London Interbank Offered Rate (LIBOR). The investigative findings of some national authorities have raised concerns regarding the integrity of major global benchmarks. In certain cases, these investigations have led to admissions of wrongdoing by large, internationally-active financial institutions. None of these institutions have been Canadian-based.

The importance of financial benchmarks to both the global financial system and domestic markets prompted the International Organization of Securities Commissions (IOSCO) to publish a set of principles in July 2013. The principles are intended to address the shortcomings revealed by some national authorities in the processes used to determine some major interest rate benchmarks. The principles were endorsed by the Financial Stability Board in August 2013 and by the G20 leaders in September 2013. It should be recognized that these principles were developed by, and primarily aimed towards, securities and market conduct regulators, rather than banking supervisors such as OSFI. 

In Canada, a key industry-determined financial benchmark is the Canadian Dealer Offered Rate (CDOR). The Investment Industry Regulatory Organization of Canada (IIROC) published its review of CDOR supervisory practices in January 2013. The IIROC review notes that an important distinction between LIBOR and CDOR is that CDOR is a committed lending rate, while Libor is a borrowing rate. CDOR is the rate at which contributors are willing to extend credit to corporate clients utilizing a Bankers’ Acceptance facility (typically priced at CDOR plus a stamping fee determined by each client’s credit risk). In contrast, LIBOR is intended to reflect the rate at which a contributor believes it can borrow from other financial institutions. Given the differences between the two benchmark rates, certain issues that have been identified regarding LIBOR do not apply to the same extent in the case of CDOR.

Nevertheless, the Canadian Heads of Regulatory Agencies (HoA)Footnote 1 is working to develop an enhanced CDOR oversight framework that will be informed, inter alia, by new international expectations and developments, and adapted to the unique characteristics of CDOR. Given that CDOR submission activities are now solely conducted from within major Canadian banks, HoA members have agreed that OSFI is best placed to assume a role, consistent with its mandate and expertise, in supervising the effectiveness of governance and risk controls surrounding banks’ CDOR submission processes.   

Since the global financial crisis, OSFI has increasingly worked with banks to raise the bar on corporate governance and risk management domestically to meet new international standards through, for example, OSFI’s Corporate Governance Guideline. Consistent with this work, OSFI’s expectations of CDOR submitters will be principles-based and focused on their internal benchmark submission activities and processes. OSFI will set out its expectations for CDOR submitters over the course of 2014.

Yours truly,

Julie Dickson


Footnote 1

The HoA consists of: Bank of Canada, Department of Finance, OSFI, Ontario Securities Commission, Autorité des marchés financiers, Alberta Securities Commission, and B.C. Securities Commission.

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