Peter Routledge participates in a fireside chat at VersaFi & PwC - Canada Strong: The Future-Ready Financial System

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Moderator:

OSFI's latest Annual Risk Outlook highlights real estate secured lending, non-bank financial institutions, and liquidity and funding risks as key areas of focus. How is OSFI responding to these evolving risks, and what are you asking institutions to prioritize in this environment?

Superintendent Peter Routledge:

• We're responding by sharpening our focus on the risks that matter most, including real estate exposures, risks building outside the traditional banking system, and liquidity under stress, and by taking a forward-looking view of how those risks could evolve and interact.
• Credit risk remains central, which is why we've launched a consultation on a new Credit Risk Management Guideline to strengthen how institutions assess and manage risk across portfolios, particularly as conditions change.
• On non-bank financial institutions, our focus is on areas like leverage, interconnectedness, and concentrations. At this stage, risks are more isolated than systemic, but they are growing, so visibility and discipline are key.
• On liquidity, the system remains sound, but the key vulnerability is the speed at which conditions can shift. This is why we are refining our framework and emphasizing preparedness.
• Across all of this, the message to institutions is consistent: maintain strong risk discipline, understand your exposures, and be ready to act early as conditions evolve.

Moderator:

In a context of ongoing geopolitical uncertainty, rapid technological change, and shifting economic conditions, how is OSFI using its policy and supervisory tools to support the resilience of Canada's financial system?

Superintendent Peter Routledge:

• We are using both our policy and supervisory tools in a more focused and forward-looking way, concentrating on the risks that matter most and being clear about our expectations with institutions.
• On the policy side, that has meant prioritizing key initiatives, while taking a more disciplined approach to the broader policy agenda. We've removed over 600 pages, in English and French combined, of outdated or duplicative guidance to improve clarity and reduce unnecessary burden, and creating more room to focus on the risks that matter most.
• On the supervisory side, we continue to focus on early risk identification and direct engagement with boards and senior management, while sharpening how we communicate our supervisory expectations as risks become more complex and interconnected.
• At the same time, we are calibrating requirements where the evidence supports it, to ensure capital and liquidity remain aligned with underlying risks while supporting continued lending and economic activity.

Moderator:

Recent international developments, including changes to capital frameworks in other jurisdictions, have renewed focus on competitiveness. How is OSFI thinking about the balance between maintaining strong resilience in Canada and ensuring that Canadian institutions can compete effectively on a global basis?

Superintendent Peter Routledge:

• Our starting point is that resilience and competitiveness are not exclusively opposing objectives. A well-capitalized, well-governed financial system is a source of strength for the economy and a competitive advantage in its own right.
• We also look closely at how our capital framework compares internationally. Whether it's through CAR for banks or LICAT, MCT, or MICAT for insurers, we benchmark our requirements to ensure they remain appropriately calibrated and that Canadian institutions are not placed at an undue disadvantage.
• That includes looking at the calibration of risk weights and tools like the Domestic Stability Buffer. We adjust these where the evidence supports it, to reflect underlying risk while maintaining strong guardrails.
• More broadly, our approach is pragmatic and evidence-based. We are prepared to make targeted adjustments, whether through capital calibration, implementation timing, or policy streamlining, to ensure the frameworks remain balanced, risk-sensitive, and aligned with the evolving environment.
• Ultimately, the objective is to maintain a system that is strong enough to absorb shocks, while remaining competitive and able to support economic growth over the long term.

Moderator:

Follow-up: How do you approach maintaining a level playing field between domestic and foreign institutions operating in Canada?

Superintendent Peter Routledge:

We recently released a technical note that examines Canadian banks' capital ratios relative to international peers. Key takeaways include:

1. Canadian banks hold capital well above supervisory expectations.
2. Canada's capital regime is proportionate and balanced.
3. Canada's systemically important banks are among the most consistently profitable globally.

Moderator:

As Canada's energy system evolves, both physical climate risk and transition risk may affect the balance sheets of financial institutions. How does OSFI assess these risks, and what supervisory levers does it use to ensure institutions remain safe and sound in the face of uncertainty?

Superintendent Peter Routledge:

• We approach climate through a financial risk lens. Physical and transition risks matter to the extent that they affect institutions' balance sheets through credit exposures, asset values, insurance liabilities, and operations.
• The priority for us is understanding exposure. That includes better data, clearer measurement, and scenario analysis. We've done this through exercises like our Standardized Climate Scenario Exercise, which is publicly available on our website, and our new climate risk regulatory returns.
• From a supervisory perspective, we've set clear expectations through Guideline B-15 on climate risk management. That includes governance, risk management, and disclosure, and we expect boards and senior management to understand where these risks sit and how they are being managed.
• We're not trying to predict specific outcomes or set climate policy. Our role is to ensure institutions are identifying, measuring, and managing these risks so they remain resilient as conditions evolve, and we've made that work publicly available on our website.

Moderator:

Digital assets and financial innovation are evolving quickly, from stablecoins to tokenization. How is OSFI approaching these developments to support innovation while maintaining confidence in the financial system?

Superintendent Peter Routledge:

• We are taking a measured and collaborative approach, guided by a "first, do no harm" principle. Innovation is already happening, and we want to see it develop within the regulated perimeter, where it is aligned with prudential standards and subject to appropriate oversight. That includes areas like tokenization, stablecoins, and broader digitalization of financial services.
• Through initiatives like the Global Risk Institute's Financial Industry Forum on Artificial Intelligence, we are working with industry to better understand emerging risks and develop appropriate approaches to oversight as these technologies evolve.
• That work highlights the importance of strong governance, clear accountability, and continuous monitoring. As institutions adopt more advanced technologies, including AI-enabled systems, the potential benefits increase, but so do the risks, particularly around model use, data integrity, and operational resilience.
• At the same time, we remain focused on core risks, including integrity and security, recognizing that more complex and technology-driven environments can amplify vulnerabilities such as fraud, cyber threats, and third-party dependencies.

Moderator:

Follow-up: Where do you see the main opportunities and risks emerging for Canada's financial system?

Superintendent Peter Routledge:

• The opportunity is that innovation can improve efficiency, expand access to financial services, and support more dynamic and competitive markets, particularly as institutions adopt new technologies and business models.
• The risk is that if these developments are not well understood and governed, they can introduce new vulnerabilities, including reduced transparency, increased operational complexity, and greater interconnectedness across the system, which can make risks harder to detect and manage.

Moderator:

Artificial intelligence is becoming increasingly embedded in financial services. From a supervisory perspective, what opportunities and risks does this create, and how should boards and senior management approach oversight?

Superintendent Peter Routledge:

• Artificial intelligence creates real opportunities for financial institutions, including improved analysis, greater efficiency, and enhanced decision-making. But it can also amplify risks if not well governed, particularly around model use, data quality, bias, fraud, and operational resilience.
• From a supervisory perspective, our focus is not the technology itself, but how it is used and governed. We expect boards and senior management to understand where AI is being used in their institutions and how the associated risks are being managed in practice.
• More broadly, we are taking a measured and adaptive approach. We are building our understanding, engaging with industry, and avoiding premature regulation, while ensuring institutions remain accountable for how these tools affect their resilience.

Moderator:

Follow-up: What, if anything, is different about AI compared to previous waves of technology from a risk and governance standpoint?

Superintendent Peter Routledge:

• What is different about AI is not just the speed and scale, but the way it changes how decisions are made and where accountability sits. As these systems become more embedded, it becomes less clear where decisions originate, which makes clear assignment of responsibility even more important.
• That is why governance needs to evolve alongside the technology. As we've outlined in our work on AI and in our consultation on senior leader accountability, institutions need clear ownership, strong oversight, and an obligation for senior leaders to be accountable for outcomes, even when decisions are supported by complex models.

Moderator:

In your view, what will distinguish the most resilient and competitive Canadian financial institutions and individual leaders over the next five years?

Superintendent Peter Routledge:

• The institutions that stand out will be those with strong fundamentals. Capital, liquidity, and governance remain the foundation of resilience, particularly in a more uncertain and fast-moving environment.
• Beyond that, it comes down to judgment. The ability to identify emerging risks early, challenge assumptions, and make decisions in conditions of uncertainty will be a key differentiator.
• We also expect to see institutions that can adapt. That includes integrating new technologies responsibly, while maintaining discipline around risk management and operational resilience.
• For leaders, the differentiator will be clarity and accountability. Clear ownership of risk, effective challenge, and the ability to align strategy with risk appetite will matter more than ever.

Moderator:

If you were to leave this audience with one message about strengthening Canada's financial system in the years ahead, what would it be?

Superintendent Peter Routledge:

• If I had to leave one message, it would be that resilience is not static. It requires constant attention to emerging risks, disciplined decision-making, and the ability to adapt as conditions change.
• The strongest systems are built on clear fundamentals, but also on the quality of judgment. In a more complex environment, that becomes the real differentiator.
• Institutions that invest in understanding their risks, strengthening governance, and building the capacity to adapt will be best positioned to remain resilient and competitive over time.
• In the end, resilience comes down to the quality of decisions institutions make, especially when conditions are uncertain.