Opening remarks by Jamey Hubbs at the SMSB Risk Management webinar

Introduction

Hello and welcome. Thank you Brigitte for that introduction and thank you everyone for joining us today.

I will be brief, since we have a great day of informative and engaging sessions ahead, and I am very much looking forward to the discussion.

I’d like to begin by highlighting the most significant recent supervisory development for small and medium-sized deposit-taking institutions, or SMSBs.

On January 31 of this year, OSFI released new Capital and Liquidity Requirements and Pillar 3 Disclosure Guidelines for SMSBs.

You’ll hear more about these new rules in the next session, but they are the culmination of a multi-year consultative process that reflects OSFI’s commitment to implementing the Basel III framework in a way that makes sense for the Canadian context.

In OSFI’s 2019-2022 Strategic Plan, we set out to identify ways to better tailor our regulatory and supervisory approaches to match the size, complexity and risk profile of financial institutions.

As fortune had it, we were also working toward implementing the internationally agreed-upon Basel III banking reforms in a way that makes sense for the Canadian context. This provided an excellent opportunity to advance our Strategic Plan’s proportionality goals.

As we reviewed the capital and liquidity frameworks for SMSBs, we were guided by three principles:

• First, any changes to the frameworks should match the nature, size, complexity and activities of the institutions;
• Second, they should help protect depositors and creditors while allowing institutions to compete and take reasonable risks; and
• Finally, they should strike a harmonious balance between improving risk sensitivity and reducing complexity, to make them more fit-for-purpose.

In July 2018 we published a consultation paper that included our proposed approach to advance that work on SMSBs’ capital and liquidity frameworks.

This process concluded on January 31 of this year, when we published a suite of revised guidance and requirements for capital, leverage, liquidity and reporting for all banks, SMSBs included.

The new capital and liquidity requirements include a new simplified segmentation approach for SMSBs, with three categories replacing the four previous ones.

While OSFI’s updated treatment of SMSBs is perhaps the most recent bit of news relevant to this audience, it is of course set within a much larger context.

It has been a tumultuous two years. Canada’s financial system has faced COVID-19, populist protests that included a social media campaign urging Canadians to withdraw funds from banks, and conflict in Eastern Europe. All these factors have made for a challenging environment for all deposit-taking institutions, especially SMSBs.

OSFI is re-imagining itself to deal with these increasingly frequent and increasingly severe bouts of volatility. In December 2021 we released “A Blueprint for OSFI’s Transformation 2022-2025”.

This document introduces a strategic organizational focus on mandate, culture and risk appetite that will guide OSFI going forward.

It also includes six supporting initiatives that will play an essential part in transforming OSFI:

• Culture Initiatives;
• Risk, Strategy and Governance;
• Strategic Stakeholder and Partner Engagement;
• Policy Innovation;
• Supervisory Framework; and
• Data Management and Analytics.

Of course, these kinds of changes are often accompanied with changes to the ranks of senior management. You may have seen the letter we issued earlier this month announcing OSFI’s new top-level organizational structure.

Effective April 1, I will become OSFI’s first Vice-Superintendent, with two new groups reporting to me: the Policy, Innovation and Stakeholder Affairs Sector, and the Assistant Superintendent and Chief Strategy and Risk Officer.

My colleague Ben Gully, meanwhile, will oversee a new, single Supervision Sector responsible for all three of OSFI’s regulated industries.

This top-to-bottom transformation of OSFI’s structure and operations is necessary to adapt to the challenges we’ve seen – and fearlessly meet new ones yet to come.

We believe that far from being an outlier, the heightened volatility of the last few years is emblematic of a changing global economy, the disruptive effects of new technologies and a growing international consensus on climate action.

Today’s sessions go directly to the heart of that “new normal”.

Over the next two hours you’ll hear from OSFI’s experts on stress testing, capital and liquidity requirements, risk management and more. You’ll also learn more about OSFI’s strategic priorities in the coming years, including our data strategy and risk management policy initiatives.

I am looking forward to a great day of dialogue and discussion. By the end of today’s program, I believe we will all have a better sense of the current landscape facing SMSBs as well as the potential scenarios that lie before us.

Thank you for being here today.