OSFI Superintendent Peter Routledge recently delivered a keynote speech at the Global Risk Institute Annual Summit, highlighting the organization’s evolving approach to risk management, particularly in the areas of integrity and security.

Evolving Mandate

• Historically, OSFI’s primary focus has been on prudential, financial risks, especially post the 2008 global financial crisis. This included aspects like leverage ratios, reserve capital, and liquidity.
• However, the growing prevalence of non-financial risks, such as those arising from climate change, digitalization, institutional culture, and geopolitical risks, has necessitated a broader approach.

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• OSFI’s mandate has recently undergone changes, emphasizing the importance of integrity and security in promoting confidence in Canada’s financial system.

Non-Financial Risks A Growing Concern

• While financial risks remain a significant concern, non-financial risks, if unaddressed, can manifest as prudential risks.
• Risks like climate change, digitalization, and institutional culture, although primarily non-financial, can have substantial prudential impacts.
• Geopolitical risks are becoming more prominent and can expose Canadian financial institutions to vulnerabilities.

Addressing Threats to Integrity and Security

• The Government of Canada modified OSFI’s mandate in June, emphasizing the supervision of federally regulated financial institutions (FRFIs) to ensure they have adequate policies against threats to their integrity or security, including foreign interference.
• Failures in integrity can lead to financial risks. Integrity is demonstrated through actions consistent with ethical standards, regulations, and the law.
• Security, defined as protection from threats to physical premises, technology assets, data, and information, is crucial for operational resilience.

Implications of Foreign Interference

• While Canadian banks are generally resilient, they are not immune to threats from potential hostile actors.
• Foreign interference can manifest in various ways, including cybersecurity threats, illicit financial activities, and vulnerabilities in ownership and control of financial institutions.
• OSFI emphasizes early action to address risks and expects financial institutions to respond immediately to suspicions of undue influence or malicious activity.

Future Directions

• OSFI plans to release draft guidelines on its approach to integrity and security by mid-October, with final guidance expected in the new year.

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• The organization is also building its capability to measure foreign interference risk in collaboration with federal government partners.
• OSFI’s updated Supervisory Framework will consider how to supervise these new risks.