OSFI’s New Supervisory Framework

Our new supervisory framework for federally regulated financial institutions and pension plans will become effective in April 2024. The renewal of the supervisory framework is part of the Blueprint transformation program and will be the first comprehensive update in almost 25 years.

The supervisory framework guides our oversight of financial institutions and pension plans. Our primary goal is to protect depositors, policyholders, and pension plan members from loss. Supervision is judgment-based, and we use the framework to support the identification of risks as well as our response to those risks.

The new framework will apply to both financial institutions and pension plans and recognizes the specific nature of the different industries we regulate.

We’re modernizing the framework to keep it fit for purpose

Our current framework has served us well, but changes in the risk environment mean that it is time for an update to:

• better capture the impact of macro-centric risks on the risk profile of regulated financial institutions and pension plans;
• build flexibility to accommodate new business models and new risks, including non-financial risks; and
• further leverage data and advanced analytics to promote more risk-based supervision.

Supporting our ability to take early corrective action.

We aim to act early to address risks that could jeopardize the public’s confidence in the soundness of the Canadian financial system. To that end, we’ve designed the new framework to respond quickly to the most serious risks and provide greater transparency to financial institutions^{Footnote 1} through disclosure of:

• a new tier rating based on size, complexity, and potential for contagion
• a rating reflecting viability risk according to an expanded 8-point scale
• for larger institutions, we will also include ratings of business risk, financial resilience, operational resilience and risk governance

Our intervention stage ratings will continue using the existing scale. These stage ratings will be an “anchor” to our intervention activities as other elements of the framework change.

The new framework is not expected to lead to changes in intervention ratings at transition in and of itself. However, financial institutions will likely find that their ratings shift more often than in the past, as we anticipate that the new framework will be more responsive to changes in risk. This information will help institutions achieve outcomes that address supervisory concerns.

Supervisory judgment is still key.

While the risk environment is changing, the role of the supervisor stays the same and our approach is still principles-based and forward-looking.

The supervisory framework provides a structure for our risk assessment. As such, we do not conduct public consultation about changes to the framework. The development process included a study of approaches used by prudential regulators in peer jurisdictions. In developing the new framework, we also engaged with the other federal government organizations that work together to support the strength and stability of Canada’s financial system.

We’re investing in continuous improvement. This will include a post-implementation review of the new framework and holistic reviews at least once every five years.

What’s next?

We will publish more information about the new framework in early 2024. In addition, we are holding webinars for regulated financial institutions in November 2023 and for pension plan stakeholders in spring 2024. These events will describe the new framework and the rollout in more detail.

Our first webinars are being held at 1:30 p.m. EST on Thursday, November 2, 2023 and Thursday November 9, 2023. The same content will be presented at each session and the webinar is intended for regulated financial institutions. Register here.