OSFI’s Superintendent, Peter Routledge participates at the Starling Insights Compendium Launch Event

Moderator:

More than a year has passed since the Silicon Valley Bank (SVB) crisis. What are the takeaways? Has your perception of how OSFI handled that crisis changed? Is there anything you would do differently?  

Superintendent Peter Routledge:

• The challenge we face is that the risk environment has grown progressively more complex, more volatile, and uncertain – and it will keep going in that direction.
• On March 12, 2023, OSFI took control of the assets of Silicon Valley Bank’s Canadian branch after United States authorities shut down its parent bank. This decisive action was followed by a court-supervised, orderly restructuring process protecting the interests of Canadian creditors. My assessment at the time was that this approach, developed with U.S. officials, was in the best interest of the branch’s creditors. I remain convinced that this was the best course of action. 
• The main lesson we learned in the last financial crisis, was the earlier you act as a supervisor and the earlier the institutions you supervise act in the face of very significant risks, the better all players do. OSFI being a proactive regulator, I believe that quick and decisive action is always preferred. We have a high appetite for early intervention to address risks that could jeopardize the public’s confidence in the soundness of the Canadian financial system.
• But we recognize that it is not cost-effective or realistic for us to intervene on all risks facing regulated institutions and pension plans. That’s why we’ve tailored our new supervisory framework to reflect the variety of supervisory approaches we take to financial institutions. We have introduced the concept of tiering, so we can adapt our regulatory intensity to the institution’s particular risk environment.

Moderator:

In recent years, OSFI has turned increased attention to non-financial risks (Culture & behavior risk guideline, I&S guideline). Is the inclusion of non-financial risks a harder sell for the institutions you regulate? Is there resistance? How do you convince those institutions to “buy into” the importance of non-financial risks?  

Superintendent Peter Routledge:

• While financial risks continue to be a significant focus for us, we also recognize the growing prevalence of non-financial risks (culture, cyber, climate, integrity and security) that if left unmitigated, could materialize as financial risks.
• Until last year, OSFI had a separate and unequal approach to financial and non-financial risks. We tended to classify financial risk as “prudential” and non-financial risk as “nonprudential.”
• After SVB, Budget 2023 revised our mandate to ensure federally regulated financial institutions manage risks to their integrity and security responsibly. This wasn’t all new for us, OSFI has done a lot of work on integrity & security over the last 10 years. The Integrity and Security regime that we are building, is in fact, a re-characterization of the supervisory and regulatory work we have advanced since the global financial crisis of 2008-2009. For example, other guidelines already articulate expectations around things like background checks and tech and cyber. 
• In terms of resistance, federally regulated financial institutions have seen firsthand how non-financial risks are materializing into financial risk.
• For example, culture can influence sound decision-making, prudent risk-taking and effective risk management, which can materially support or weaken the resilience of federally regulated financial institutions. 
  • OSFI expects federally regulated financial institutions to: 
    • Define a desired culture and continuously develop and improve the culture to support their purpose, strategy, effective management of risks, and resilience; and, 
    • Continuously evaluate and respond to behaviour risks that can affect the federally regulated financial institutions’ overall safety and soundness. 
  • In Q4, 2024 we will release our Final Guideline on Culture and Behaviour Risk. 

Moderator:

How are you working with your international peers to ensure global consistency? 

Superintendent Peter Routledge:

• When it comes to developing regulatory approaches for Canada, we participate in the activities led by various international standard-setting bodies, including the Basel Committee on Banking Supervision (BCBS), the Financial Stability Board (FSB) and the International Association of Insurance Supervisors (IAIS), to name a few. 
• Once international standards have been developed, we take note of how they are being adopted by other jurisdictions, especially those where our financial institutions may be active.  
• Harmonizing regulatory requirements does offer benefits to financial institutions, but our job is to look at these standards and ask ourselves what makes sense from a Canadian perspective. In doing this, we carefully consider the risk we think the international standard addresses, but also how it would impact the ability of financial institutions to compete effectively and take reasonable risks.