Our History

OSFI was established on July 2, 1987, by the Office of the Superintendent of Financial Institutions Act (OSFI Act). This legislation created a single regulatory agency responsible for the regulation and supervision of all federally chartered, licensed or registered banks, insurance companies, trust and loan companies, fraternal benefit societies and private pension plans.

How OSFI came to be

OSFI was created through the merger of its two predecessor agencies – the Department of Insurance (DOI), and the Office of the Inspector General of Banks (OIGB).

The name Office of the Superintendent of Financial Institutions was chosen by combining the names of its two predecessor organizations: The opening was derived from The Office of the Inspector General of Banks, while the Department of Insurance was led by a Superintendent. Because the type of regulated entities went beyond only banks and insurers, the term financial institutions was an appropriate choice to complete the name for the new agency, the Office of the Superintendent of Financial Institutions.

The DOI was established at the turn of the 20th century, largely in response to problems experienced in the industry. The role of the DOI was to oversee federally licensed life insurance and property and casualty insurance companies, trust and loan companies and pension plans, and to provide actuarial services to the government.

The OIGB was established in 1925 as a result of the failure of the Home Bank, with the mandate to regulate Canada’s chartered banks. At that time, the notion of a government "inspection system" for banks was not widely embraced – there were concerns about cost, efficiency and duplication of work being performed by internal and external auditors. In response, the new regulatory system was patterned on the one in use in the United Kingdom, which did not include on-site examinations and placed a great deal of reliance on self-regulation. For this reason, and because of the then small number of Canadian banks and the relative stability of the Canadian banking system, the OIGB operated with a very small staff.

In general terms, little attention was paid to matters of financial sector regulation for quite some time. Two Royal Commissions – the Macmillan Commission in the early 1930s and the Porter Commission in the early 1960s – explored developments in the Canadian financial system. The Macmillan Commission restricted its role to matters of banking and currency, while the Porter Commission had a broad mandate to make recommendations concerning structural and operational issues affecting the financial system and financial institutions.

Many view the Porter Commission report as a key influence on the process of financial sector reform. Porter concluded that the financial system was sound, but that developments had moved beyond the current state of laws and regulatory practices. Porter argued that the public could not be insulated from loss in dealing with public institutions and markets. The Commission called for a system that would provide for adequate disclosure and set high standards of self-regulation, backed up by strong government supervision and powers to enforce proper practices. Many of the recommendations of the Porter Commission found their way into future reform initiatives, starting with the 1967 revision of the Bank Act.

Also, in early 1967, Minister of Finance Mitchell Sharp introduced legislation that established the Canada Deposit Insurance Corporation (CDIC) to ensure the safety of deposits and to bring about a gradual improvement in the minimum financial standards of deposit-taking institutions in Canada.

In 1976, Minister of Finance Donald Macdonald released a discussion paper on revisions to the Bank Act. These revisions, which gave rise to the 1980 Bank Act, were most notable for proposing that subsidiaries of foreign banks be permitted to operate in Canada and for significantly upgrading and modernizing the corporate law provisions of the Act. The 1980 Bank Act eventually became the template for the structure of the other financial industry statutes.

By 1984, the government had stated its intention to undertake a comprehensive review of Canada’s financial system. As a result of rapid change in the financial marketplace, both at home and abroad, the long-standing separation between the "four pillars" of the financial system – banks, trust companies, insurance companies and securities dealers – was closing. In April 1985, the Minister of State for Finance Barbara McDougall released a discussion paper entitled The Regulation of Canadian Financial Institutions. Among several key matters relating to industry structure and powers, the paper (commonly known as the "Green Paper") raised the question of whether the OIGB and the DOI should be consolidated.

The failures of the Canadian Commercial Bank and the Northland Bank in 1985, which involved the unprecedented compensation of both insured and uninsured depositors, served to focus thinking on Canada’s regulatory structure and created a significant impetus for action.

In November 1985, the House of Commons Standing Committee on Finance, Trade and Economic Affairs weighed in on the debate created by the Green Paper with a report entitled Canadian Financial Institutions. Among other matters, the report recommended the creation of a National Financial Administration Agency (NFAA) to administer all consumer protection plans (including CDIC) and to act as the regulatory and supervisory agency for all federal financial institutions and certain provincial institutions (where appropriate for consumer protection plan purposes.) In May 1986, the Senate Committee on Banking, Trade and Commerce released its own report in response to the Green Paper, entitled Towards a More Competitive Financial Environment. Contrary to the House Committee’s views, the Senate Committee opposed the consolidation of the regulator and CDIC, arguing that consumer protection and solvency would be served best by keeping the four key regulatory components – prudential regulation, deposit insurance, auditing and the corporate governance process – separate. In April 1986, Minister of State for Finance Barbara McDougall released the results of a study prepared by Coopers and Lybrand, entitled A Study to Assess the Current Mandate and Operations of the Office of the Inspector General of Banks. The report on this study, which was undertaken in response to the Canadian Commercial Bank and Northland Bank failures, contained three key conclusions: first, that the OIGB should expand the scope of its inspection work; that the OIGB should be strengthened through improving the qualifications and experience of staff; and that the chain of accountability among management and internal and external auditors should be strengthened.

The report resulting from the enquiry into the Canadian Commercial Bank and Northland Bank failures written by Justice Willard Estey, released in August 1986, further highlighted the need to ensure a sound approach to risk management associated with the financial marketplace. The Estey enquiry report concluded that the OIGB should be consolidated with CDIC into a new Canada Deposit Insurance Commission. After extensive consultation on the proposals contained in the April 1985 Green Paper and, taking into account the results of the Coopers and Lybrand study, the Estey enquiry and the Senate and House Committee reports, in December 1986, Minister of State for Finance Thomas Hockin released a policy paper entitled New Directions for the Financial Sector. The policy objective of this paper (commonly known as the "Blue Paper") was to provide a framework for an effective, dynamic and sound financial system to contribute actively to economic renewal and to benefit Canadians. On the supervisory side, this paper recommended the merger of the OIGB and the DOI, largely on grounds that the activities of the different types of regulated institutions were converging and that the supervisory system should be similarly integrated. Increased cooperation among the various agencies responsible for financial sector issues was also recommended.

OSFI is created

In 1987, the government introduced a bill to create the Office of the Superintendent of Financial Institutions, merging the OIGB and the DOI under one entity—OSFI. In addition, this legislation established the Financial Institutions Supervisory Committee (FISC), composed of the Superintendent of Financial Institutions (as chairperson), the Governor of the Bank of Canada, the Deputy Minister of Finance and the Chairman of the CDIC. FISC was created to allow the confidential exchange of information among its members on all matters related to the supervision of financial institutions. Other legislation followed closely, permitting federally regulated financial institutions to own securities subsidiaries, granting OSFI the power to halt unsafe and unsound business practices, and raising the financial standards of federally incorporated insurance companies. Both pieces of legislation were passed in late June 1987 and they received Royal Assent July 2nd of that year.

Also in 1987, The Office of the Chief Actuary (OCA) was created as an independent unit within OSFI’s organizational structure. Prior to the joining of the Offices, the function of Chief Actuary was executed under the auspices of the Department of Insurance.

The OCA’s mandate is to conduct statutory actuarial valuations of the Canada Pension Plan (CPP), the Old Age Security program, federal public sector employee pension and insurance plans, and the Canada Student Financial Assistance Program. These valuations estimate the financial status and viability of these plans and programs as required by legislation.

OSFI – The early years

Under the leadership of its first Superintendent, Michael Mackenzie, OSFI’s early years were characterized by continuous pressures and numerous economic events that seriously affected Canadian financial institutions. The first few years were focused on consolidating OSFI’s newly merged activities, while balancing the effects of significant events such as the financial market downturn of October 1987, the lesser developed country debt problem, and the adoption of the international Basel Capital Accord in July 1988.

From a regulatory standpoint, Michael Mackenzie was a strong proponent of a "tripartite oversight" concept. This involved boards of directors of federally regulated financial institutions, external auditors and actuaries, along with OSFI, participating in the development of a thorough and balanced oversight system. Close relationships and frequent communication among these parties continue to be among the strongest tenets of OSFI’s practices.

By 1990, OSFI was developing and implementing a range of procedures and approaches designed to detect early signs of trouble in federally regulated financial institutions and pension plans. These measures included stronger regulatory capital rules, the development and application of rigorous and sound accounting rules, the enhancement of OSFI’s relationship with CDIC and regulators at the provincial and international levels, and the development of a more risk-based focus for OSFI’s examination framework.

In 1992, OSFI’s external environment was marked by a number of high-profile financial institution interventions and challenges, prompted by the sweeping reform of the federal financial institutions statutes, which was completed in June 1992.

By 1993-94, the meltdown of real estate markets following the boom years of the late 1980s, and total financial institution loan losses of almost $30 billion in the five-year period from 1989 to 1993, continued to cause concern for Superintendent Mackenzie, although he remained, to the end of his term, confident in OSFI’s ability to meet the challenges of regulating in a dynamic environment.

During 1994-95, under the leadership of newly appointed Superintendent John Palmer, OSFI was reorganized into three sectors – operations, policy and corporate services – to make more effective use of its resources while enhancing visibility, access and service. In February 1995, roughly a decade after the completion of the original policy work that had led to the creation of OSFI, the Secretary of State for International Financial Institutions Douglas Peters, released a discussion paper entitled Enhancing the Safety and Soundness of the Canadian Financial System, which again raised – and again dismissed – a new regulatory structure involving a possible merger with CDIC. The government decided to retain the existing system of supervision – relying on OSFI, corporate governance, and external auditors and actuaries as the three main elements of the supervisory process. Productive checks and balances created by the continued separation of OSFI and CDIC were noted as positive, and no merger or other restructuring was suggested. It was also proposed that OSFI be provided with a legislated mandate to clarify its role and accountability. The recommendations of the policy paper formed the basis for legislation, which was enacted in the summer of 1996.

A legislated mandate

The legislated mandate made it clear that OSFI’s primary responsibilities were to help minimize losses to depositors and policyholders and to contribute to public confidence in the Canadian financial system. At the same time, it was recognized that OSFI cannot, and should not, be expected to prevent all financial institution failures. The mandate also recognized the important role and responsibility of boards of directors and management of financial institutions in ensuring that risks are managed properly. The mandate stressed the importance of early intervention to carry out OSFI’s objectives and established the framework to serve as the basis for OSFI’s strategic goals and priorities.

To meet these goals, OSFI developed a number of best practices, guidelines and other related materials. In 1997, the Regulatory and Supervisory Practices Division began working on the development of a new Supervisory Framework. The Framework, which outlined a comprehensive, risk-based methodology for the supervision of federally regulated financial institutions in all industries, was approved for implementation and put into practice in 1999. (A revised version of the Framework was released in 2011.)

Under the new methodology, OSFI began focusing on the assessment of an institution’s material risks and the quality of its risk management practices, rather than applying a functional or rules-based approach when conducting examinations. This approach provided for a more effective use of OSFI’s resources. In turn, this enabled some institutions to benefit from a reduced regulatory burden, when able to demonstrate that their risks were compensated for by strong internal controls.

Basel II

Internationally, OSFI was working with the Basel Committee on Banking Supervision to improve the regulation and supervision of financial institutions in Canada and abroad. In January 2001, this work resulted in the release of a proposal and consultative package for a new Basel Capital Accord (PDF, 1,111 KB) (commonly called Basel II). Once finalized, the new Accord was meant to replace the 1988 Basel Accord, which set out minimum capital standards for banks. (Basel II was implemented in November 2007.)

The changing of the guard

In September 2001, following the retirement of John Palmer, Deputy Superintendent Nicholas (Nick) Le Pan was appointed Superintendent, having served with the Office since 1995 and previously with the Department of Finance. Mr. Le Pan’s efforts to improve transparency led to the publication, for the first time, of OSFI rulings, aimed at promoting a better understanding of how it applied and interpreted the financial institutions legislation it administered. In December 2001, Mr. Le Pan was asked to lead the Accord Implementation Group for the Basel Committee on Banking Supervision, a body created to serve as a forum where supervisors could share information related to the implementation of the Accord.

In October 2001, Bill C-8, An Act to Establish the Financial Consumer Agency of Canada, and to Amend Certain Acts in Relation to Financial Institutions received Royal Assent. The Financial Consumer Agency of Canada (FCAC) was created to consolidate and strengthen the oversight of consumer protection measures in the federally regulated financial sector, and to expand consumer education.

The Act effectively removed from OSFI’s mandate the responsibility for overseeing consumer protection. The Commissioner of the FCAC became a member of the Financial Institutions Supervisory Committee, to facilitate effective information sharing.

In 2002, OSFI began providing federally regulated financial institutions with a Composite Risk Rating (CRR) to reflect its assessment of their safety and soundness. The sharing of these ratings with the individual institutions enhanced the effectiveness of the supervisory process.

In 2004, OSFI established its Risk Tolerance Framework. This framework set out the broad governing principles involved when assessing the levels of risk tolerance of financial institutions.

Changes in the pension industry

In 1998, the Pension Benefits Standards Act, 1985 (PBSA) was amended to remove the Superintendent's duty to examine each pension plan filed for registration and to put more responsibility for compliance on plan administrators. These changes enabled OSFI’s Private Pension Plans Division to move from a rules-based to a full, risk-based, supervisory approach for both monitoring and on-site examinations.

The November 4, 2010 Supreme Court of Canada’s decision in NIL/TU,O Child and Family Services Society v. B.C. Government and Service Employees’ Union provided direction on the jurisdiction applicable to labour matters in respect of First Nations. Consequently, OSFI began identifying First Nations pension plans subject to the PBSA that might be affected and transferring the supervision of those plans to the relevant provincial jurisdictions.

A new superintendent for challenging times

In October 2006, Deputy Superintendent Julie Dickson was appointed Acting Superintendent and, in July 2007, Superintendent. The beginning of her tenure was marked by a significant downturn in the U.S. subprime mortgage market in late summer of 2007, which quickly spread to financial markets around the world. 

In 2007, OSFI provided input, with a number of other stakeholders, to the International Monetary Fund (IMF) Financial Stability Assessment Program (FSAP) review of Canada’s financial system. The FSAP report, released in February 2008, concluded that “Canada’s financial system is mature, sophisticated and well-managed. Financial stability is underpinned by sound macroeconomic policies and strong prudential regulation and supervision.” The timing of that assessment was fortuitous given the events taking place around the world as governments provided assistance to troubled financial institutions to avert systemic problems.

Financial crisis

When European and North American banks teetered on the brink of meltdown in 2008, requiring bailouts and extraordinary central bank intervention, Canadian banks escaped relatively unscathed. While much has to do with history and how the Canadian banking system was set up, there are many other reasons to explain why Canada fared well during the crisis. Much has been written about this extraordinary period.

2011-2017

In the years that followed, the impacts of the crisis continued to be felt and were characterized by historically low interest rates, a sluggish global economy and a myriad of financial regulatory reforms. Canadian financial institutions continued to perform reasonably well but there were signs emerging that low interest rates were affecting the pricing of financial assets and the risk appetites of financial institutions and pension plans. Persistent low interest rates not only created more risk in the system as some financial institutions went in search of better returns, but Canadian consumers continued to take on even more debt, often in the form of real estate.

During this period of uncertainty, OSFI continued to work closely with its federal regulatory partners – the Department of Finance, the Bank of Canada, the Financial Consumer Agency of Canada (FCAC) and the Canada Deposit Insurance Corporation (CDIC). This collaboration was instrumental in maintaining Canada’s financial system relatively strong and stable in comparison with that of many other G20 countries.

OSFI also maintained an active role in international forums, including the Financial Stability Board (FSB) (http://www.fsb.org), the Basel Committee on Banking Supervision (BCBS) (www.bis.org/bcbs), the Senior Supervisors Group (SSG) and the International Association of Insurance Supervisors (IAIS) (www.iaisweb.org/home). Through participation in these groups, OSFI ensured it was well positioned to learn from, and contribute to, discussions on enhancements to global financial regulatory frameworks. It also allowed OSFI to provide guidance to help the institutions it regulated integrate the Basel Capital Framework into their processes, thereby enhancing their risk management practices

Global regulation

The G20 retained its focus on international regulatory reform to better insulate the global financial system from future shocks. The FSB was tasked with developing a comprehensive set of reforms to address the weaknesses that became apparent during the crisis.

OSFI and other international regulators helped to develop a series of enhanced rules and standards to strengthen global financial stability, including the Basel III bank reforms on capital and liquidity, enhanced disclosure practices, and recovery and resolution planning.

Specific initiatives included OSFI’s work on the global thematic review of risk governance conducted by the FSB; co-chairing the BCBS review of risk weights used by banks for their trading book assets; ongoing peer reviews by the FSB and the BCBS and chairing the FSB Supervisory Intensity and Effectiveness (SIE) group, which explored the tools and methods used in the supervision of systemically important financial institutions.

One of the key controversies arising from the crisis was whether institutions could be “too big to fail.” Many informed observers believed that in the event a large systemic institution was to fail, governments would come to its rescue with a bail out. In response, the FSB established criteria to determine what constituted a global systemically important financial institution (G-SIFI). Institutions meeting the criteria would face greater supervisory scrutiny, enhanced disclosure rules and be required to hold more capital in the form of a surcharge. A further concern arose about whether disclosing the names of these systemically important institutions could create moral hazard – that is, if markets assume that the designated institutions had been deemed systemically important to the world financial system, they may also assume such institutions are safe havens for investors and others who would be protected in the event of a failure.

With an international standard in place, it was FSB member countries’ turn to designate domestic systemically important banks (D-SIBs) in their respective jurisdictions. In March 2013, OSFI designated the country’s six largest banks as D-SIBs: the Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, and Toronto-Dominion Bank.

These institutions now faced greater scrutiny, enhanced disclosure rules and additional capital requirements.

In November 2017, the Financial Stability Board (FSB) added Royal Bank of Canada (RBC) to the list of global systemically important banks (G-SIBs).

In November 2019, the FSB added Toronto-Dominion Bank to the list of G-SIBs.

The G-SIB designation and subsequent increased regulatory expectations are designed to reduce the likelihood of a failure and the potential impact that a failure would have on the global economy.

D-SIBs

In April 2018, OSFI released its Total Loss Absorbing Capacity (TLAC) guideline for Canada’s D-SIBs.

On August 21, 2018, the Superintendent issued orders to Canada’s six largest banks, legally designating them as D-SIBs. That order formalized OSFI’s identification of these banks as D-SIBs in March 2013.

In April 2019, OSFI released the final version of its Guideline B-2: Large Exposure Limits for Domestic Systemically Important Banks. The guideline reflects sound practices for the management of risks related to large exposures and provides additional guidance on methods OSFI expects D-SIBs to use for identifying, measuring, managing and monitoring risks in this area.

Basel III

In April 2017, OSFI released its guideline, Pillar 3 Disclosure Requirements, following a public consultation process. This guideline sets out OSFI’s expectations for domestic systemically important banks (D-SIBs) on the domestic implementation of the Revised Pillar 3 Disclosure Requirements, issued by the Basel Committee on Banking Supervision (BCBS) in January 2015. In October 2018, this guideline replaced the existing disclosure requirements issued under Basel II (including Basel 2.5 enhancements and revisions) in the areas of credit risk, counterparty credit risk and securitization activities.

In December 2017, the Basel III reforms were endorsed by the Group of Central Bank Governors and Heads of Supervision, the committee that oversees the Basel Committee on Banking Supervision.

In January of 2022, OSFI announced revised capital, leverage, liquidity and disclosure rules that incorporate the final Basel III banking reforms with additional adjustments to make them suitable for federally regulated deposit-taking institutions (DTIs).

These revised rules help ensure that Canadian DTIs effectively manage risks through adequate levels of capital and liquidity, thereby helping to bolster the resilience of these institutions.

Guidance

One of the many early lessons of the financial crisis was the need for better risk management. Some of the actions taken by OSFI included increasing its focus on financial institutions’ stress-testing capabilities. Also, to further support strong prudential practices at financial institutions, OSFI introduced annual risk management seminars for chief risk officers of the various industry sectors to communicate its expectations and provide an opportunity for dialogue with OSFI supervisors and regulators.

In 2011, to reflect more than a decade of experience, changing risks in the financial environment and international developments, OSFI reviewed and renewed its Supervisory Framework, first introduced in 1999 to guide supervisors in their day-to-day reviews of financial institutions.

Throughout the post-crisis period, OSFI introduced or finalized a number of guidelines that were intended to promote and maintain confidence in Canada’s financial system.

One key guideline was on corporate governance that focused solely on the fundamental aspects of governance pertinent from a prudential regulatory perspective. It included the critical role of the board of directors (its composition and competencies), risk governance (with a requirement for institutions to have a risk appetite framework), and the essential role of the audit committee.

At the end of 2016, OSFI announced a review of its expectations of boards of directors. The goal was to ensure clarity in OSFI’s expectations; to enable directors to focus their efforts and resources in effectively executing their role; and to apply OSFI board requirements in a more proportional manner, taking into consideration the size, complexity and nature of individual institutions’ operations. Consultations began in early 2017 with selected boards and stakeholder groups.

Housing

Given the rising record levels of household debt in Canada, and that real estate-based lending represented a significant portion of banks’ balance sheets; OSFI also focused its attention on the issues of residential mortgages and home equity lines of credit. While real estate-based lending had contributed to the profitability of the Canadian banking industry, it had left many households vulnerable to adverse economic shocks. In an effort to prevent these vulnerabilities from evolving into problems for the financial system, OSFI issued a Guideline on Residential Mortgage Underwriting Practices and Procedures in June 2012. The guidance built on OSFI’s domestic supervisory work and reflected and expanded upon the FSB’s Principles for Sound Residential Mortgage Underwriting, which was released in fall 2011.

At the end of 2016, OSFI released the final version of new capital requirements for mortgage insurers that aimed to ensure these firms can withstand a major downturn in the housing market. The new requirements were more risk sensitive and incorporated key characteristics such as borrower creditworthiness, outstanding loan balance, loan-to-value ratio, and remaining amortization. They also intended to ensure a level of conservatism in the protection provided to policyholders and other creditors of mortgage insurers.

OSFI was also given the authority to examine Canada Mortgage and Housing Corporation (CMHC)’s commercial programs. However, because CMHC is a Crown corporation, it is the government that establishes rules governing CMHC’s activities, such as its size and shape, and sets the rules on insured mortgages. OSFI’s role is to report its findings and recommendations to the CMHC board of directors and to the relevant federal ministers for their follow up.

The federal government also continued to implement measures designed to contain risks in the housing market and adjust the rules for new government-backed insured mortgages. These ranged from lowering the maximum amortization period and increasing minimum down payments to limits on refinancing of property values and higher eligibility loan criteria.

In 2013, Canada was subject to another International Monetary Fund (IMF) Financial Sector Assessment Program (FSAP) review. The FSAP report identified OSFI’s close touch supervision, its clear and straightforward mandate, and its ability to attract and retain financial sector specialists as some of the factors that helped Canada withstand the crisis well. OSFI increased its efforts to hire and retain talent with the technical skills and industry experience necessary to deal with the rapidly changing and complex environment. 

In late 2013, a Small- and Mid-Sized Advisory role was created with the objective of strengthening communication with small- and mid-sized financial institutions to ensure OSFI maintained a current understanding of common industry concerns; and to review OSFI’s internal processes and communications to identify areas where the compliance effort could be reduced without increasing risk by compromising key controls.

With a view to reinforcing prudent mortgage insurance underwriting, in November 2014, OSFI issued a revised Residential Mortgage Insurance Underwriting Practices and Procedures guideline. It strengthened disclosure practices for mortgage insurers and outlined sound risk management principles, including setting prudent requirements for lenders and applying appropriate due diligence to their practices. This was particularly true in the low interest rate environment; given the potential impact rising rates could have on household debt levels and the exposure this presented to lenders.

In October of 2017, OSFI published the final version of Guideline B-20 - Residential Mortgage Underwriting Practices and Procedures, which came into effect on January 1, 2018. It applies to all federally regulated financial institutions.

Guideline B-20 reinforces OSFI’s expectation that federally regulated mortgage lenders remain vigilant in their mortgage underwriting practices. It focuses on the minimum qualifying rate for uninsured mortgages, expectations around loan-to-value (LTV) frameworks and limits, and restrictions to transactions designed to circumvent those LTV limits.

In August of 2018, OSFI issued a new capital guideline for mortgage insurers called the Mortgage Insurer Capital Adequacy Test (MICAT). The MICAT sets out the regulatory framework within which OSFI assesses whether a mortgage insurance company maintains adequate capital. The guideline came into effect on January 1, 2019.

In May 2021, OSFI announced that, effective June 1, 2021, the minimum qualifying rate for uninsured mortgages (i.e., residential mortgages with a down payment of 20 percent or more) will be the greater of the mortgage contract rate plus 2 percent or 5.25 percent.

As of 2021, OSFI will review and communicate the qualifying rate at a minimum annually, every December. This timing is set well in advance of the high-volume spring housing market.

Pensions

Bill C-25, An Act relating to pooled registered pension plans, was tabled in Parliament in November 2011 and received Royal Assent in June 2012. This new piece of legislation established the federal regulatory framework for those plans.

A pooled registered pension plan (PRPP) is a type of pension plan that is similar to a defined contribution plan; however, employer contributions are not mandatory. A PRPP pools contributions together to achieve lower costs in relation to investment management and plan administration. PRPPs can be offered to employers and to self-employed persons under federal jurisdiction and administrators of federal PRPPs must hold a licence issued by the Superintendent.

Property and casualty (P&C)

While the lessons from the global financial crisis were a contributing factor and sparked a number of regulatory initiatives internationally as well as here at home, in the case of the P&C industry, most of the changes to prudential requirements were introduced to address domestic developments and help ensure that OSFI guidance kept pace with industry.

A significant new guideline introduced for insurers was the Own Risk and Solvency Assessment (ORSA), designed to strengthen the insurance industry’s enterprise-wide risk management process. An ORSA is a comprehensive approach to the analysis and management, by an insurer, of its capital requirements. Its purpose is to provide a more effective means for insurers and insurance regulators to be able to effectively monitor insurance risk and capital requirements on a prospective, rather than retrospective, basis. In keeping with OSFI’s preference for principles-based regulation, institutions would consider the nature, scale and complexity of their business lines in developing an ORSA.

With several major fault lines in Canada, earthquakes are risks that can be catastrophic. And since the P&C industry in Canada underwrites this risk, it became an area of focus for OSFI and a revised version of Earthquake Exposure Sound Practices (Guideline B-9) was published in February 2013. The guideline required insurers to have comprehensive policies and procedures in place to deal with the complexities of managing earthquake exposures, along with an appropriate level of oversight. Indeed, catastrophic losses from earthquakes pose a threat to the financial well-being of many P&C insurers. As such, this guideline could also be used as the foundation for a comprehensive approach to catastrophe risk management more broadly.

In the world of insurance, reinsurance is a common strategy to mitigate risk and exposures. But it can also lead to greater risks. In 2013, OSFI issued Guideline B-3 that provided valuable considerations on reinsurance risk management practices such as the importance of diversification of reinsurers and robust, frequent credit evaluation of reinsurers. Risk management practices would also be applied to reinsurance provided by institutions’ affiliates.

A few years later, in 2016, OSFI noted a trend in the use of reinsurance by some P&C insurers of insuring risks in Canada and transferring a significant portion of the risk offshore to affiliated unregistered reinsurers. This model introduced concentrated counterparty credit risk and operational risk in distressed situations within a group of related companies and there was a need to review the practice to better identify the extent of risks as well as assess whether there is the potential for systemic risk. Accordingly, OSFI worked to ensure that its reinsurance regulatory and supervisory framework remained relevant, reflecting the current risks involved in transferring business to reinsurers.

In February 2021, OSFI concluded its review of reinsurance practices by issuing final revised versions of Guideline B-3, Sound Reinsurance Practices and Procedures, and Guideline B-2, Property and Casualty Large Insurance Exposures and Investment Concentration.

The revised Guideline B-3 sets out OSFI’s expectations for FRIs to better identify and manage risks arising from the use of reinsurance, particularly counterparty risk.

The revised Guideline B-2 will require property and casualty FRIs to be able to cover the maximum loss related to a single insurance exposure on any policy it issues, assuming the default of its largest unregistered reinsurer on that exposure.

These revised guidelines come into effect January 1, 2025.

In December 2022, the Superintendent of Financial Institutions used authorities outlined in the Insurance Companies Act to temporarily increase statutory investment, lending and borrowing limits by 25 per cent for Canadian Property and Casualty (P&C) FRIs from January 1, 2023, to December 31, 2024. This adjustment was issued in advance of the transition to International Financial Reporting Standard (IFRS) 17 Insurance Contracts from IFRS 4 Insurance Contracts, on January 1, 2023. This two-year period gives companies time to transition and comply with the prudential limits under IFRS 17.

In January 2023, OSFI published final Guideline E-16, which sets out OSFI’s expectations for how requirements in the Insurance Companies Act (the Act) and the Policyholders Disclosure Regulations (the Regulations) should be applied to participating and adjustable policies.

This guideline clarifies OSFI’s expectations about participating accounts and helps insurance companies better interpret the relevant legislation.

Cyber risks

Cyber-attacks on insurance firms can result in significant, tangible damages such as fines, legal fees, lawsuits and fraud-monitoring costs. A less obvious but no less significant impact may be the loss of policyholders’ trust. Since the insurance business relies on trust, a major breach can have a very real impact on an insurer’s brand.

But it’s not only the insurance sector that dealt with these risks. Financial institutions in all sectors faced increasing operational risks from cyber threats and attacks, which became more complex and sophisticated, potentially affecting the safety and soundness of the institutions OSFI regulates.

In response, OSFI released cyber security self-assessment guidance in October 2013 to assist institutions in assessing their own cyber risk and preparedness. Cyber security would be an issue of continuing focus for OSFI in the following years.

In August 2021, OSFI released the updated Technology and Cyber Security Incident Reporting Advisory. The updated Advisory supports a coordinated and integrated response to technology and cyber security incidents when they occur at FRFIs and governs how FRFIs should disclose and report incidents to OSFI.

In July 2022, OSFI released its final Guideline B-13. This guideline sets out OSFI’s expectations for how FRFIs should manage technology and cyber risks such as data breaches, technology outages and more.

Guideline B-13 answered an urgent need for enhanced regulatory guidance to FRFIs on technology and cyber risk management while allowing them to compete effectively and take full advantage of digital innovation. Guideline B-13 is effective January 1, 2024.

In April 2023, OSFI released the Intelligence Led Cyber Resilience Testing (I-CRT) framework. This framework helps identify areas where the financial sector could be vulnerable to sophisticated cyber-attack. It outlines a methodology and serves as an implementation guide for FRFIs conducting I-CRT assessments. The I-CRT framework is a supervisory tool that supplements Guideline B-13 with I-CRT assessments that allow FRFIs to proactively identify and address issues with their cyber resilience.

Life insurers

The financial crisis revealed that even the world’s largest insurers, such as American International Group (AIG), risk insolvency. There were other examples of high-risk products and options, such as segregated funds with guaranteed minimum withdrawal benefits, which caused significant drops in income during market declines and periods of severe market volatility.

In considering the underlying causes of the financial problems from the crisis, it became clear that at a number of organizations’ enterprise-wide risk management practices and policies were deficient; there was weak governance at various levels; and oversight functions were ineffective.

In September 2012, OSFI issued a Life Insurance Regulatory Framework to provide life insurance companies and industry stakeholders with an overview of regulatory initiatives that OSFI would be focusing on over the next few years. It outlined how the regulatory framework would evolve to ensure Canadians continued to benefit from a strong life insurance industry. The Framework addressed issues such as corporate governance and risk management, evolving regulatory capital requirements, and promoting transparent information on the financial condition of life insurance companies.

In 2016, OSFI developed the Life Insurance Capital Adequacy Test (LICAT), a capital adequacy guideline for federally regulated life insurance companies, which takes effect in 2018. The LICAT is the culmination of over a decade of work undertaken to replace the Minimum Continuing Capital and Surplus Requirements guideline, which has been in place since 1992. OSFI developed the LICAT to better align capital and risk measures with the economic realities of the life insurance business, while taking into account international advancements in the development of solvency frameworks. It takes into account the current economic realities of the life insurance business, recent developments in actuarial and financial reporting standards as well as economic and financial practices, and international trends in solvency frameworks.

In November 2017, OSFI released the final version of its 2018 Life Insurance Capital Adequacy Test (LICAT) Guideline for federally regulated life insurers.

The LICAT was an important evolution in OSFI’s regulatory capital expectations. It represented a more advanced and risk-sensitive approach to capital that reflects lessons learned from the financial crisis, significant changes in the nature and management of risk within the life insurance industry, and international advancements in solvency frameworks.

The release of the LICAT marked the culmination of over a decade of work. The LICAT implementation date was January 1, 2018.

Bail-in

During the financial crisis, a number of banks in other countries became financially distressed and either failed or received financial support from their governments so they could continue operating. Since then, a series of new rules have been put in place to help strengthen the global financial system and to reduce the risk a bank would fail and the potential impact of a failure.

One of the measures that Canada and countries around the world are implementing is what is known as a ‘bail-in’ regime. Essentially, this involves converting certain debts of a large bank into equity in the event the bank depleted its capital and was in danger of failing. Similar to contingent capital, it is designed so that bank shareholders and creditors would be responsible for recapitalizing a bank rather than the government, taxpayers or depositors.

Bi-laterally, OSFI worked with the Bank of Canada to conduct macro stress-tests; and with the Canada Deposit Insurance Corporation and the Department of Finance on the bail-in regime. These strong relationships with regulatory partners continued to support Canada’s robust financial system.

Superintendent Routledge

In June 2021 Peter Routledge was appointed as the new Superintendent of Financial Institutions for a seven-year term. 

Mr. Routledge served as the President and Chief Executive Officer of Canada Deposit Insurance Corporation (CDIC) where he led a successful transformation of CDIC’s culture, strategy and technology vision from November 2018 to June 2021.

Mr. Routledge has held a variety of leadership roles in the financial services industry, both in Canada and abroad. He served as managing director of research at National Bank Financial, where he led a team responsible for producing equity, fixed income, and derivatives research on Canadian financial institutions. Prior to that, Mr. Routledge led the Canadian Financial Institutions Group at Moody’s Canada, with responsibilities for covering issuers in the banking, life insurance, personal and commercial insurance and reinsurance industries in Canada and the United States.

Climate risk

In November 2021, OSFI accelerated its actions to address climate-related risk by becoming a member of The Network of Central Banks and Supervisors for Greening the Financial System (NGFS).

In January 2022, OSFI and the Bank of Canada released the results of pilot project that used climate-change scenarios to better understand the risks to the financial system related to a transition to a low-carbon economy.

Together with six Canadian financial institutions, the Bank of Canada and OSFI developed scenarios that would help the financial sector identify, measure and disclose climate-related risks. All scenarios showed that the transition would entail important risks for some economic sectors.

On March 7, 2023, OSFI published Guideline B-15: Climate Risk Management, which sets out its expectations for the management of climate-related risks. The Guideline is OSFI’s first climate-sensitive prudential framework and recognizes the impact of climate change on managing risk in Canada’s financial system.

The publication of Guideline B-15 follows one of the most extensive consultations in OSFI’s history. OSFI’s responses to the feedback received can be found in the consultation summary.

On June 19, 2023, OSFI launched the Climate Risk Forum (CRF) to build awareness and capacity within Canada’s financial sector to respond to climate-related risks. The CRF is a virtual forum used by OSFI to organize its climate engagement activities. It connects OSFI with domestic partners and stakeholders to help the Canadian financial sector navigate the challenges of managing climate-related risks.

Annual Risk Outlook

In April 2022, OSFI released its first Annual Risk Outlook (ARO). The ARO describes risks that OSFI considers most critical to the financial system—ranging from cyber-attacks and digital innovation to housing-related considerations and climate change—and OSFIs plans to address them in the coming year.

The Annual Risk Outlook series supports A Blueprint for OSFI’s Transformation 2022-2025, which aims to transform OSFI to ensure we thrive in intensifying uncertainty so that public confidence in a sound financial system remains unwavering.

Silicon Valley Bank

On March 12, 2023, the Superintendent of Financial Institutions moved to protect creditors by taking temporary control of the assets of the Canadian branch of Silicon Valley Bank, issuing notice that he intends to seek permanent control of its assets and requesting that the Attorney General of Canada apply for a Winding-Up Order.

The Superintendent took this action to preserve the value of the assets held at the branch in light of the decision by the California Department of Financial Protection and Innovation to shut down Silicon Valley Bank located in Santa Clara, California. The U.S. Federal Deposit Insurance Corporation was appointed as receiver.

On March 15, 2023, the Superintendent took additional action to protect creditors of the Silicon Valley Bank’s Canadian branch by taking permanent control of its assets. In addition, the Ontario Superior Court of Justice granted a winding up order.

The winding up order under section 10.1 of the Winding-up and Restructuring Act began the orderly, court-supervised process of restructuring the branch as a result of the newly created, full-service U.S. Federal Deposit Insurance Corporation (FDIC) “bridge bank” – Silicon Valley Bridge Bank, N.A. – in a way that best served the interests of its creditors and allowed operations of the Silicon Valley Bank to continue in Canada.

OSFI no longer played an active role in the resolution of the matter once the court order was granted.

New mandate

In 2023, the Government of Canada passed Bill C-47, the Budget Implementation Act (BIA). It includes:

• a suite of enhanced oversight measures for OSFI over FRFIs, which helps them to protect themselves from integrity and security threats, including foreign interference; and
• an increase of OSFI’s powers to reflect our expanded mandate and to address concerns related to national security and foreign interference.

These measures came into force upon Royal Assent. The following 2 requirements come into force on January 1, 2024:

• FRFIs must establish adequate policies and procedures that protect themselves from integrity and security threats; and
• OSFI must examine FRFIs at least annually to determine the adequacy of these policies and procedures.

These changes are consistent with OSFI’s existing mandate to make sure that the financial system is credible and that risks from a variety of sources, including emerging risks to integrity and security, are managed appropriately.