Appearance at the standing committee on banking, commerce and the economy, November 6, 2024

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Good afternoon, Madame Chair and members of the Committee.

I am joined here today by my colleagues Angie Radiskovic, Assistant Superintendent and Chief Strategy and Risk Officer, and Tolga Yalkin, Assistant Superintendent Regulatory Response.  

Parliament created OSFI in 1987. At that time, our mandate contained a single overriding requirement: to ensure institutions remained in sound financial condition and, when they strayed from that state, to direct their boards of directors to take prompt corrective actions to return their institutions to financial soundness.

This singularly focused mandate worked quite well for the first 20 years of OSFI’s existence, but its utility waned during the global financial crisis. Regulators realized that although financial condition indicators (e.g., capital and liquidity) were critical to institutional and systemic stability, they were too often lagging indicators. So, we in the financial regulatory profession began focusing on non-financial risks.

We realized that non-financial risks, just like financial risks, can have serious prudential consequences. Now, “prudential” is an interesting word – it means the protection of depositors, policyholders, and creditors. Since the global financial crisis, OSFI has expanded its risk surveillance and response in recognition of the reality that non-financial risks pose the same prudential danger to depositors, policyholders, and creditors as financial risks.

Last year, Parliament expanded our mandate requiring OSFI to ensure that financial institutions have adequate policies in place to protect themselves against threats to their integrity and security, including foreign interference.  This fundamental change signaled the equivalence of financial and non-financial risks. 

I would like to address the recent news of anti-money laundering lapses by a Canadian institution in the United States; lapses which resulted in guilty pleas by the institution to violations of anti-money laundering and bank secrecy act laws in that country. I would like to be forthcoming about our involvement in this case because I think that information would contribute to public confidence in the Canadian financial system. That said, Canadian law prohibits me or any OSFI official from disclosing confidential information obtained from federally-regulated financial institutions in the course of OSFI’s regulation and supervision activities.

When OSFI sees deficiencies in an institution, financial or non-financial, we take early action and oblige management and boards of directors to take prompt, corrective measures, which could be financial and/or non-financial in nature. We recognize the critical role played by boards of directors and their important role in effective risk governance.

To do our work effectively, we constantly monitor changes in the risk environment, including new and emerging risks, that may negatively impact financial institutions.

Every year we publish our Annual Risk Outlook, with a Semi-Annual update, that identifies the top risks facing financial institutions. In those reports, we highlighted integrity and security risks, including fraud and money laundering, pointing out that non-financial risks can manifest as financial risks.

Thank you.