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    OSFI Sets D-SIB Buffer, to Consult on Operational Resilience Aspects

    December 10, 2021

    The Office of the Superintendent of Financial Institutions (OSFI) announced its decision to maintain the Stability Buffer for domestic systemically important banks (D-SIBs) at 2.50% of total risk-weighted assets, as calculated under the Capital Adequacy Requirements (CAR) Guideline. Another announcement relates to the OSFI becoming a member of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). In addition, OSFI published the results of the July 2021 consultation on operational resilience. Based on the feedback received, OSFI proposes to revise Guideline E-21 to shift the focus of the guideline toward operational resilience. Respondents will have an additional opportunity to provide feedback on specific OSFI proposals on operational risk and resilience, including draft revisions to Guideline E-21 in 2022. OSFI also intends to issue a consultative document on culture and reputation risk in the first quarter of 2022.

    OSFI believes that the pace of digitalization, the complexity of the operating environment (including the third-party ecosystem). and the magnitude and frequency of operational disruption have underscored the importance of operational resilience. At the system level, a disruption to the critical operations of one or more institutions could foreseeably lead to a loss of public confidence in the wider Canadian financial system. Thus, on July 06, 2021, OSFI issued an industry letter to federally regulated financial institutions on operational resilience. OSFI received a number of responses from these institutions, industry associations, and a technology company. In summary, the respondents told OSFI that:

    • Operational resilience should be viewed as an outcome of effective operational risk management, particularly the management of technology, cyber, third party, model, business continuity, compliance, people and process risks.
    • OSFI should address operational resilience by including relevant principles in the Guideline E-21.
    • Any guidance in this area should be principles-based and proportionate to the size, nature, scope, and complexity of the operations of an institution and should be broadly aligned with guidance on operational resilience in other jurisdictions.

    While many respondents identified a institution's culture as an important driver of effective operational resilience, some argued culture would not be best addressed through an operational resilience framework. Several respondents viewed reputation risk as an outcome of operational and financial risk management, as opposed to a stand-alone risk. Based on this feedback, OSFI proposes to revise Guideline E-21 to shift the focus of the guideline toward operational resilience, while continuing to reinforce its expectations in relation to operational risk management. The revised guideline will complement other OSFI guidelines that focus on specific risks and support operational resilience. The revised Guideline E-21 will be proportionate to the different size, nature, scope, and complexity of operations of a federally regulated financial institution.

     

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    Keywords: Americas, Canada, Banking, Basel, Regulatory Capital, Leverage Ratio, Operational Risk, D-SIB, Capital Buffer, Operational Resilience, Third-Party Ecosystem, Guideline E-21, Reputation Risk, NGFS, ESG, Sustainable Finance, OSFI

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