Assistant Superintendent Regulatory Response Tolga Yalkin participates in the C.D. Howe Institute Workshop on Regulatory Excellence

Moderator:

How do we balance financial stability with creating conditions for dynamism?

Assistant Superintendent Tolga Yalkin:

• Financial stability and dynamism are deeply interconnected and mutually reinforcing. Stability—and the confidence it generates—is a prerequisite for dynamism to thrive. Confidence in the system encourages innovation, investment, and competition, which are essential for growth. Without stability, the financial system becomes unpredictable and risky, discouraging innovation and undermining trust in markets. Stability creates the foundation for dynamism, providing institutions with the assurance needed to take calculated risks and explore new opportunities.
• To achieve this balance, regulators establish clear and predictable expectations that foster stability while avoiding unnecessary rigidity. Proportionality plays a critical role: regulations are tailored to the size, complexity, and risk profile of institutions, ensuring smaller players are not overburdened while systemic risks are adequately addressed. Stakeholder engagement is equally important, enabling regulators to craft policies that reflect diverse perspectives and support competitiveness alongside stability. Principle-based approaches allow flexibility, helping institutions adapt to new technologies and evolving market conditions while maintaining compliance with regulatory goals.
• Achieving the right balance requires ongoing monitoring and adjustments to keep pace with changes in the financial landscape. Regulations must evolve to address emerging risks without stifling innovation or growth. This iterative process ensures the regulatory framework remains relevant, effective, and supportive of both stability and dynamism in the financial system.

Moderator:

Does the decision-making approach change by sub-sector, e.g., banks versus insurers?

Assistant Superintendent Tolga Yalkin:

• Sub-sectors, like banks and insurers, are regulated differently because they face distinct risks and operate with unique characteristics. Banks, for instance, are heavily exposed to liquidity and credit risks due to their deposit-taking and lending activities, while insurers primarily contend with underwriting and long-term solvency risks tied to their policy obligations. These differences necessitate tailored regulatory approaches to effectively address the specific vulnerabilities of each sector.
• However, financial institutions across sub-sectors also share common challenges, such as cybersecurity threats, third-party dependencies, and the need for sound governance. These shared risks often call for broader, cross-sectoral policies that ensure consistent standards across the financial system. For example, operational resilience frameworks and cybersecurity expectations apply to all institutions, recognizing that these risks transcend individual sectors and require a unified approach.
• Sometimes, sector-specific policies are required to address risks unique to particular sub-sectors. For instance, capital adequacy requirements for banks prioritize liquidity and credit risk management, while insurers’ capital expectations emphasize solvency buffers for long-term liabilities. Conversely, principles-based approaches are particularly useful in balancing these differences, as they allow regulators to tailor requirements proportionally based on the size, complexity, and risk profile of individual institutions. This ensures fairness, flexibility, and a cohesive framework that supports the financial system as a whole.

Moderator:

How should regulators address the regulatory burden on industry?

Assistant Superintendent Tolga Yalkin:

• Regulatory burden, defined as the effort, cost, time, and flexibility loss associated with meeting compliance requirements, should be addressed thoughtfully and proportionately. It is not inherently negative; instead, it reflects the impact regulations have on institutions’ operations. Recognizing that financial institutions have finite resources to allocate, regulators and industry share an interest in ensuring those resources are deployed efficiently to manage the most significant risks. This means focusing on expectations that maximize the “risk bang for the buck” while minimizing unnecessary strain.
• Reducing regulatory noise is a key step in addressing this burden. Removing outdated or redundant guidelines, like the recent rescission of legacy documents, helps institutions focus on what truly matters. Clarity is equally important. Regulations written in clear, direct language reduce confusion and save time for both institutions and regulators. Similarly, aligning expectations to the size, complexity, and risk profile of institutions ensures that smaller players are not overburdened while systemic risks are adequately managed.
• Finally, a principles-based approach provides much-needed flexibility, allowing institutions to meet regulatory objectives in ways that align with their specific strategies and operations. This approach, combined with ongoing dialogue between regulators and industry, ensures that expectations remain effective, proportionate, and relevant over time. By focusing on clarity, proportionality, and collaboration, regulators can reduce the burden on institutions without compromising the safety and soundness of the financial system.

Moderator:

Do regulator mandates allow for consumer choice in investor protection?

Assistant Superintendent Tolga Yalkin:

• Regulators do not operate in a vacuum; while they are duty-bound to faithfully carry out their mandates, such as ensuring the safety, soundness, and stability of financial institutions, they must also consider the broader context. The ultimate goal is a vibrant and accessible financial services sector that serves society effectively. For prudential regulators, this means focusing on their core responsibilities while recognizing that their actions influence broader market dynamics, including consumer confidence and accessibility.
• While prudential regulators often prioritize system stability, they may indirectly impact consumer choice through policies that shape financial products or services. For instance, ensuring institutions remain financially sound can foster consumer trust and provide access to reliable products. However, conflicts can arise when prudential goals intersect with consumer-focused objectives, such as affordability. For example, relaxing mortgage underwriting standards to increase access to homeownership could destabilize the financial system, as seen in the 2008 financial crisis.
• Maintaining a clear separation of roles is therefore critical. Prudential regulators must stay focused on stability and resilience, while consumer protection agencies or market conduct regulators directly address affordability and choice. Collaboration across regulatory bodies ensures that these complementary goals are met without undermining one another. This balanced, integrated approach supports a financial system that is both stable and accessible, benefiting consumers and institutions alike.

Moderator:

How practical are cost-benefit analyses (CBA) for regulations?

Assistant Superintendent Tolga Yalkin:

• CBAs can be valuable tools for evaluating regulations, but their practicality depends on how they are used. The real value of a CBA lies in the process of thinking critically about trade-offs, costs, benefits, and unintended consequences—not in achieving precise or absolute results. Over-focusing on exact predictions can give a false sense of certainty, especially in the complex and dynamic environment of financial regulation, where outcomes are inherently uncertain.
• A good analogy is weather forecasting. The purpose of a forecast isn’t to predict the exact temperature or rain at a specific time but to prepare for what might happen. Similarly, CBAs help regulators anticipate potential impacts, identify key trade-offs, and make informed decisions. Over-investing in precise estimates can mislead decision-makers, creating a false sense of security while missing broader patterns and scenarios that matter most for regulatory success.
• In practice, CBAs are most useful for targeted initiatives where reliable data exists, such as assessing capital or liquidity requirements. For broader regulatory proposals, the structured thinking they encourage is far more valuable than the precision of their results. By focusing on broad insights and using CBAs to guide discussions, regulators can craft balanced regulations that maximize impact while minimizing unnecessary burden.

Moderator:

What gaps can a modern financial regulatory framework address?

Assistant Superintendent Tolga Yalkin:

• Gaps in a financial regulatory framework arise when existing or emerging risks are not adequately addressed, leaving the system vulnerable. Regulators must continuously monitor for these gaps and act decisively to close them, ensuring the framework remains effective in safeguarding stability and resilience. These gaps may exist in current risks, where regulations need refinement, or in new and emerging risks, such as those introduced by technological advancements or systemic changes like climate impacts. While regulatory responses, such as updated expectations and guidance, are essential tools, addressing gaps requires a broader and more adaptive approach.
• The agility of the regulatory framework itself is critical. A framework that can adapt quickly to shifting risks ensures that vulnerabilities are addressed without significant delays that could compromise the system. This is where high-level, overarching tools, such as a top-of-the-house risk management framework, play a crucial role. These foundational policies provide a comprehensive view of risks across sectors and allow for a flexible response that can be tailored as needed. Agility reduces the need for constant reactive adjustments, making the framework more resilient to the unexpected.
• Proportionality further supports efforts to address gaps by ensuring that regulatory expectations are scaled appropriately to the size, complexity, and risk profile of institutions. This approach helps direct resources where they are needed most, avoiding overburdening smaller entities while focusing efforts on systemically important risks. By combining monitoring, agile frameworks, and proportionality, regulators can effectively close gaps and maintain a framework that is both robust and responsive to the evolving financial landscape.

Moderator:

Where is the low-hanging fruit versus deeper analysis needed?

Assistant Superintendent Tolga Yalkin:

• The low-hanging fruit for regulatory improvement lies in reducing clutter and eliminating outdated guidance. Many frameworks still contain legacy documents that are redundant, obsolete, or no longer aligned with today’s risks. By rescinding such documents, regulators can provide immediate benefits, simplifying compliance and enabling institutions to focus on core requirements. This type of cleanup is straightforward, resource-efficient, and delivers clear results without requiring significant additional effort.
• Addressing deeper, foundational changes, however, is far more complex. When regulators move beyond incremental improvements to consider more significant renovations to the regulatory framework, the challenges multiply. The possibilities for redesigning policies or structures expand, making it harder to decide what to prioritize or how to proceed. The analysis required becomes more intricate, with interdependencies and long-term implications that are difficult to predict. Even once decisions are made, the effort to implement far-reaching changes—for both the regulator and industry—can be significant, requiring collaboration, communication, and careful execution to ensure success.
• A balanced approach is crucial. While removing outdated guidance offers quick wins, deeper systemic improvements require thoughtful deliberation and engagement with stakeholders. The hardest part is not just conducting analysis, but making tough choices about priorities and direction in the face of growing complexity. By addressing both the immediate and the strategic, regulators can create a clearer, more adaptable framework that meets the demands of a modern financial system while managing the effort required to achieve it.

Moderator:

What role does research play in identifying gaps and opportunities?

Assistant Superintendent Tolga Yalkin:

• Research plays a critical role in identifying gaps and opportunities by ensuring that regulatory frameworks are evidence-based, targeted, and effective. By analyzing data from regulatory returns, supervisory reviews, and external sources, research helps uncover emerging risks, systemic vulnerabilities, and areas where existing regulations may be falling short. This ensures that regulatory interventions are not based on assumptions but on robust analysis, increasing their likelihood of success while minimizing unintended consequences.
• Beyond identifying gaps, research also highlights opportunities for innovation and efficiency within the financial system. For example, macroeconomic studies can reveal how market trends, technological advancements, or global developments may impact the financial sector, prompting proactive adjustments to regulatory policies. Surveillance teams conducting horizon scanning and scenario analysis provide insights into potential future risks, enabling regulators to anticipate and prepare for challenges rather than simply reacting to them.
• Finally, research supports continuous improvement by fostering collaboration between regulators, industry, and academic experts. This collaboration helps bridge theoretical insights with practical realities, ensuring that regulations remain relevant and responsive. Governance structures within regulatory bodies play a vital role by integrating these research findings into policy decisions, promoting a forward-looking approach that addresses gaps and seizes opportunities to strengthen the financial system.