Opening remarks by Superintendent Peter Routledge at the 2023 Annual Risk Outlook launch

Speech -

Check against delivery

Good morning and welcome to this media briefing on our 2023-24 Annual Risk Outlook, or ARO.

I am Peter Routledge and I serve as the Superintendent of Financial Institutions and with me is Angie Radiskovic, OSFI’s Assistant Superintendent and Chief Strategy and Risk Officer.

Before we get started, I would like to acknowledge that we are here in Ottawa, the un-ceded territory of the Anishinabe Algonquin people. Their culture and presence have nurtured and continue to nurture this land.

Last year, in an effort to provide our regulated constituents and Canadians better transparency, OSFI published its first Annual Risk Outlook. With this document, we aim to alert our stakeholders to the pressing risks we see on the horizon and to describe our regulatory and supervisory responses to those risks.

In our 2023-24 Annual Risk Outlook, we outline nine significant risks for Canada’s economy and financial system. This list is not exhaustive but identifies the risks that OSFI considers most critical. The ARO communicates OSFI’s evaluation of financial system risks and our responses to them. We do not predict that any risks will materialize into actual events, we are simply attempting to increase the level of transparency in our financial system in order to drive earlier responses to them; an act which, we believe, will lower their probability of occuring and their potential for damage.

We identified nine significant risks in the ARO and ordered them by importance. To save more time for questions I will speak briefly to the first three risks, again by order of importance, and list the following six.

First up, a housing market downturn risk. OSFI is preparing for the possibility, but not predicting, that the housing market will experience sustained weakness throughout 2023.

We are ensuring that federally regulated financial institutions or FRFIs are alert to changing market conditions and that their lending standards are aligned with our B-20 guideline on residential mortgage underwriting practices and procedures. In early 2023, OSFI also commenced a public consultation on our B-20 guideline with an initial focus on debt serviceability measures. We recently closed this consultation and expect to publish an updated draft B-20 guideline later this year.

Second, liquidity and funding risk. Liquidity and funding conditions will continue to come under pressure as financial markets absorb the impact of monetary policy tightening, geopolitical uncertainties, and retrenched risk appetites.

We are screening to detect early warning signals via material changes in deposit stability, funding access, and counterparty credit exposures.

Third, commercial real estate risk. Construction and development and office assets are sub-segments facing the highest degree of uncertainty in the coming year. High inflation, the potential rise of borrower defaults, reduced housing demand and on-going supply chain issues will continue to put pressure on construction and development.

We are continuing targeted monitoring to identify signs of borrower and portfolio vulnerabilities. Those are the first three risks. I will now list the other six risks again by order of importance. In this case, we won’t discuss each risk. We’ll take the report as read.

Number four on our list: Transmission Risk from the Non-bank Financial Intermediaries sector.

Number five: Corporate and Commercial Credit Risk.

Number six: Digital Innovation Risk.

Number seven: Climate-related Risk.

Number eight: Cyber Risk.

And number nine: Third Party Risk.

I will now go over this information in French for our francophone media outlets.​