Office of the Superintendent of Financial Institutions
OSFI is issuing the final version of the Corporate Governance Guideline (CGG).
The revised CGG is more principles-based and places greater focus on Board effectiveness. It provides Boards of Directors with greater discretion as to how they meet OSFI’s corporate governance expectations.
The revised CGG contains clear principles that replace OSFI’s Board expectations contained in risk management and capital guidelines and advisories. As a result, OSFI is reissuing these other guidance documents with their respective Board requirements removed. The revised guidelines and advisories have been posted to OSFI’s website (http://www.osfi-bsif.gc.ca/Eng/fi-if/rg-ro/gdn-ort/gl-ld/Pages/default.aspx).
OSFI has also rescinded the Advisory – Changes to the Membership of the Board and Senior Management, and revised its Assessment Criteria to align with the revised CGG.
The CGG does not apply to the Canadian branch operations of foreign financial institutions, and OSFI’s expectations for oversight of these operations remains unchanged. However, OSFI plans to review and amend guidelines E-4A Role of the Chief Agent & Record Keeping Requirements and E-4B Role of the Principal Officer & Record Keeping Requirements in the near future.
OSFI thanks those who provided comments on the draft version of the CGG published in November 2017. The annex to this letter summarizes the material comments provided and OSFI’s response.
Questions may be directed to Vlasios Melessanakis, Director, Prudential Policy at firstname.lastname@example.org or by telephone at (613) 998-5478. OSFI will be conducting information seminars for FRFI directors and corporate secretaries in fall 2018. Details will follow.
Industry members requested that OSFI define certain terms (i.e., Senior Management, Operational Management, and Oversight Functions) directly in the CGG. Respondents also requested that if there are references that should refer to the full Board, that these be explicit in the CGG.
FRFIs should continue to rely on OSFI’s Supervisory Framework for these definitions; however, the final CGG includes minor revisions to ensure clarity:
Respondents viewed the footnote suggesting COSO as a general reference for effective Internal Control Frameworks as problematic, particularly for smaller, less complex institutions.
Some respondents expressed concern regarding the need for the Oversight Functions to be independent from operational management, as well as the appropriateness of a direct reporting line.
OSFI expects the Oversight Functions to remain independent from operational management. The final CGG specifies a functional reporting line rather than a direct one.
Respondents noted that the references to “practices and procedures” within the Boards of Subsidiaries or with FRFI Subsidiaries sub-section went beyond the scope of reasonable Board involvement. Furthermore, respondents remarked that qualifying language (i.e. “that govern strategy, risk oversight, and controls”) was too restrictive.
The references to “practices and procedures” and “strategy, risk oversight, and controls” have been removed from this section of the final CGG, to ensure the language remains flexible and permissive.
Several respondents requested clarity regarding Board independence. One respondent also indicated that ‘tenure’ should not be part of the director independence policy.
In keeping with a principles and outcomes-based approach, the final CGG does not define independence. OSFI will hold industry information sessions to provide additional guidance regarding supervisory expectations in this area.
OSFI maintains that tenure should be a consideration in the FRFI’s director independence policy.
An industry member suggested incorporating the notion of “risk profile” in relation to the Risk Appetite Framework.
One respondent indicated that the CRO should not be treated differently with regards to compensation.
One respondent suggested that in cases where executives have dual roles, those roles must not compromise the independence required of the CRO.
There were a number of suggestions to refine the AC section, notably:
OSFI maintains that subsidiaries and parents should have the flexibility to determine their audit requirements, provided they comply with the requirements under the Boards of Subsidiaries or with FRFI Subsidiaries sub-section.
In keeping with a principles and outcomes-based approach, the final CGG does not define these terms to ensure flexibility and avoid prescription.