Navigating and adhering to a constantly evolving compliance regulation can be challenging for third-party partitioners. And, this challenge can be even tougher for Canadian based businesses when trying to understand and adhere to  OSFI regulations. In a two part series we explain:  

  • What is the OSFI...
  • How and why the OSFI creates regulations...
  • How you can best meet existing and newfound OSFI compliance...


What Is the OSFI?

The Office of the Superintendent of Financial Institutions, (OSFI) or also referred to as OSFI-BSIF, is an independent federal agency in Canada. Established in 1987, the agency emerged when the Department of Insurance (DOI) and the Office of the Inspector General of Banks (OIGB) merged.

 Today, the Office of the Superintendent of Financial Institutions plays an essential role in the stability and security of the Canadian financial system. In fact, the agency was designed to help promote public confidence in the Canadian financial system.

The OSFI is the only agency in Canada that supervises and oversees federally regulated financial institutions including, foreign branch banks, insurance companies, cooperative credit associations, life and fraternal benefit societies, deposit-taking institutions, property, and casualty companies, and federally incorporated or registered trust and loan companies.

What Does the OSFI Have to Do with Risk Management in Canada?

One of the essential functions of the OSFI is implementing risk management guidelines for Canada's financial institutions. The agency ensures that the following processes are being met:

  • Current and emerging risks are identified.
  • Risk assessment and measurement systems are developed.
  • Policies, practices, and other control strategies to manage risks are established.

There are several types of risk that the agency plays a role in. These include:

Climate Risk Management

The OSFI works hard to evaluate, detect, and assess new and emerging climate risks that could affect federally regulated institutions. This could mean anything from a public health crisis that affects the economy to new technology threats.

Cyber Risk Management

Cyber security is another area of risk that the OSFI regulates. The agency assesses and evaluates new and emerging cyber threats to help ensure that a financial institution’s technology operations meet the industry standard for preventing such risks. These responsibilities help Canadians rest assured that the financial system is safe and secure, giving them the confidence to trust the country’s institutions.

Third-Party Risk Management

Federally regulated financial institutions and entities use, and outsource to, third-party businesses or individuals for products, services, and more. Although third parties are essential to making any company or organization function properly, they come with related risks.

 The OSFI expects institutions in the Canadian financial sector to manage the potential risks associated with third parties. However, to ensure third-party risk management, OSFI requires federally regulated financial institutions to provide information on their arrangements with third parties, including risk management strategies.  

What Are the Risk Management Responsibilities of the OSFI?

The OSFI has several responsibilities that help the agency ensure Canada’s financial sector remains safe and secure. Some of the agency’s roles and responsibilities include:

 Establishing Guidelines

The Office of the Superintendent of Financial Institutions publishes guidelines, or best practices, that it requires federally regulated financial institutions to follow. These guidelines are considered best practice for financial institutions to adhere to, and in some cases, it’s required that institutions meet the qualifications.

 The agency constantly creates new frameworks, guidelines, and regulations that federally regulated financial institutions must follow. These new guidelines are based on many factors affecting Canada’s financial system, including climate-related and cyber risks.

Implementing Risk Management

As mentioned above, the Office of the Superintendent of Financial Institutions works to reduce the risk in the country’s financial institutions. The agency sets forth criteria for risk assessment and establishes policies to monitor risks. Numerous types of risks can affect financial institutions.

How Are OSFI Risk Management Frameworks Created?

One of the agency's responsibilities is to advance and administer a regulatory framework to promote risk management. Have you ever wondered how OSFI regulations and requirements are developed?  

The Office of the Superintendent of Financial Institutions reviews legislation and analyzes risks to predict the scenarios banks and other entities in Canada may face.

 Learning about the risks that other countries are experiencing helps the agency determine its own frameworks. Therefore, when developing new policies and regulations for Canadian financial institutions, the OSFI considers international organizations.

 Some international organizations it exchanges information with include the Financial Stability Board, the International Association of Insurance Supervisors, and the Basel Committee on Banking Supervision.

Since the risks in Canada and worldwide are constantly evolving, the OSFI is always creating new regulations and frameworks to help improve risk management.

Federally regulated financial institutions should stay on top of new and updated frameworks to ensure that their business meets regulations and best practices. Adhering to the regulations the OSFI releases also helps ensure the chances of success among these institutions.

How Does the OSFI Regulate Compliance?

To act as a financial stability board, the Office of the Superintendent of Financial Institutions must create guidelines and regulations for federally regulated institutions to adhere to. But how does it do this?

 The OSFI process works in several ways to regulate the Canadian banking and financial institution system. It operates by developing rules and guidelines. It also ensures that new accounting, actuarial, and auditing standards are being met to reduce operational risk.

Additionally, the OSFI assesses, analyzes, and evaluates various types of risk that may affect institutions in the country’s financial industry. It determines how everything from greenhouse emissions and public health crises to cyber risks and new technologies could impact institutions. It then develops regulations and frameworks to ensure that financial institutions can change their strategies, policies, and methods to prepare for various risks.

How Can RiskRecon Help with OSFI Compliance?

Stay tuned for more…