OSFI’s principles-based approach: Encouraging smart, flexible regulation

The Office of the Superintendent of Financial Institutions (OSFI) uses a principles-based approach to regulate Canada’s financial institutions. Instead of laying out detailed rules for every situation, OSFI sets broad expectations and allows each institution to decide how best to meet them. This approach supports flexibility, innovation, and accountability.

Every financial institution is different. OSFI’s model recognizes that a small credit union and a large bank face different risks and operate in different ways. By allowing institutions to tailor their risk management strategies, OSFI encourages thoughtful decision-making that fits each organization’s size, complexity, and business model.

Importantly, flexibility does not mean lower standards. Institutions are still expected to meet OSFI’s expectations. Supervisors look beyond checklists to assess whether a company’s actions reflect the intent of the guidelines. This requires professional judgment and a deep understanding of the financial sector.

Globally, regulators use different approaches. Some countries prefer rules-based regulation, which is more detailed and prescriptive. Others, like Canada, lean toward principles. Many combine both methods depending on their needs. OSFI’s approach allows it to respond quickly to new risks—such as cyber threats or climate-related financial exposures—without having to rewrite the entire rulebook.

Because principles can be interpreted in different ways, OSFI maintains regular communication with financial institutions. This includes consultations, reviews, and updates to guidance. These conversations help ensure that expectations are clear and that institutions remain accountable.

Culture also plays a key role. Institutions with strong internal cultures of risk awareness and ethical governance tend to do better under a principles-based model. OSFI looks at whether compliance is built into everyday decision-making and not treated as a box-ticking exercise.

In summary, OSFI’s principles-based approach promotes flexibility, resilience, and responsible risk management. It helps financial institutions stay agile in a changing world while maintaining public trust in Canada’s financial system.

For more information, visit OSFI’s Supervisory Approach.