Tolga Yalkin, Assistant Superintendent, delivers remarks for OSFI’s first quarterly release

Check against delivery.

Good morning and welcome to our media briefing for the first quarterly release of OSFI regulatory guidance, products, and publications.

Before I begin, I would like to acknowledge that I am speaking to you from Ottawa on land that has served, for time immemorial, as a meeting place amongst Indigenous peoples, including the Algonquin Anishinaabeg people. I am grateful to be present in this territory.

OSFI is embarking on an exercise to prioritize policy releases and rationalize our guidance. As part of this exercise, going forward, we will do three things:

• First, prioritize policy releases to ensure a disciplined approach that aligns our regulatory guidance with key risks and our new Supervisory Framework, which came into effect on April 1, 2024;
• Second, rescind guidelines and advisories that are outdated or no longer fit-for-purpose to ensure that our guidance directly supports our mandate of financial soundness and integrity and security; and,
• Third, we are also piloting a new approach to the way we release regulatory guidance.  As of today, OSFI will bundle relevant and timely regulatory guidance products and release them at the same time, once every three months.

At each upcoming quarter, our releases will align with risks that are the most prominent to ensure the regulatory guidance is relevant for stakeholders and the public.  

The release date will occur during the second month in the quarter, and there will be an industry session two weeks later for our stakeholders. The dates are posted on our website.

The quarterly releases will combine timely updates on a variety of OSFI products like guidelines, consultations, policy papers, letters and industry notices, and pensions guidance to Canadians and our stakeholders.

This new standardized approach supports critical financial and non-financial risks to financial institutions identified in our Annual Risk Outlook (ARO). It will also allow us to be more predictable and transparent in the way we inform our stakeholders and the Canadian public about our work, while streamlining how we release our regulatory guidance.

So, accordingly, today I am pleased to announce we are releasing three items:

1. Final Guideline E-21 on Operational Risk and Resilience
2. Updates to the Life Insurance Capital Adequacy Test or “LICAT” Guideline
3. A consultation on public disclosure of crypto-asset exposures

We are also releasing the 2024 Memorandum to the Appointed Actuary, which sets out our requirements for the Appointed Actuary Report.

Let me unpack each announcement.

1. First, we are publishing our final Guideline E-21 on Operational Risk and Resilience.

Assessing the effectiveness of financial institutions' operational risk management practices and operational resilience is central to OSFI’s prudential mandate. Guideline E-21 sets out our expectations for financial institutions to prepare for and recover from adverse events.

When they’re not being monitored and managed, non-financial risks like technology, cyber, geopolitical, and third-party can become financial risks.

Guideline E-21 was designed with that in mind, and sets expectations for financial institutions to withstand, adapt to, and recover from disruptive events while continuing to deliver critical operations.  

Some may ask, why does the guideline read so differently than the draft we consulted on? We have simplified the language in the guideline to make it easier to read and more streamlined. What’s important are the expectations, and they haven’t changed except for a few areas we adjusted in response to feedback. We are acutely aware of the value of brief, clear, and direct expectations in our guidelines, and we accordingly deployed significant effort to make progress towards this in this final guideline.

2. Our next announcement is the launch of our public consultation on updates to LICAT.

Our LICAT guideline helps us assess an insurer’s financial health, protects policyholders and creditors, and contributes overall to the resilience of Canada’s financial system.

It also establishes the standards that we use to assess whether life insurers maintain adequate capital or margins to support risks specific to the life insurance business.

Updates to LICAT include important changes to the segregated fund guarantee risk section and minor edits to other sections. Our public consultation on the updates is open until October 22, 2024.

3. Lastly, to better safeguard the security of our financial sector and the savings of Canadians, the federal government announced in Budget 2023 that OSFI would consult financial institutions on guidelines for publicly disclosing their exposure to crypto-assets.

And that’s what we are doing today by launching our public consultation on draft amendments to the Pillar 3 Disclosure Guidelines. The consultation on the draft amendments will run until October 22, 2024. In addition, we expect to publish relevant crypto-asset regulatory data of all institutions beginning as early as 2026.

And, as I mentioned, in addition to the three policy releases I have discussed, we are also releasing the 2024 Memorandum to the Appointed Actuary, which sets out our requirements for the Appointed Actuary Report.

Of particular note, our 2024 Memorandum will be a single document addressed to the appointed actuaries of life, property and casualty and mortgage insurers instead of two separate memorandums.

For context, the appointed actuary of each federally regulated insurance company must prepare an annual report on the valuation of the company’s liabilities, a copy of which must be filed with OSFI. The reporting enhances our ability to supervise insurers by providing us insight into how the company determines its liabilities. The purpose of the Memorandum is to articulate our expectations regarding the content of those reports.

This brings us to the end of my prepared remarks for today, but let me leave you with three key messages:

First, we truly believe that predictability and transparency is key for the financial sector. This is why we are piloting these quarterly releases, sharing in advance the regulatory changes foreshadowed in our Annual Risk Outlook. We recognize that the effectiveness of these changes depends on stakeholders being ready to absorb them. Holding these quarterly releases on a consistent schedule and sharing in advance the items that will come forward in the ARO makes progress towards this.

Second, brevity and clarity are critical. We are acutely aware that the volume of what we put out can limit the degree to which our expectations are given effect in the way that we intend within financial institutions. To this end, we have and will continue to take great pains to be as brief and clear as we can in our regulatory changes. This doesn’t mean we will abandon precision; sometimes, detail is critical when we know precisely how a financial institution ought to meet our expectations. What it does mean though is that we continually think about how we can be briefer and clearer in all the directives we provide to the financial sector.

Third, we always welcome feedback from stakeholders on how the approaches that we are adjusting are supporting them in managing the risks we expect  them to manage. Some of the changes you see today are directly because of constructive and useful feedback received from our stakeholders. As we continue to implement some of these changes, we remain happy to receive ongoing feedback on what works, what doesn’t, and what could be done differently.

Thank you.