OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023. Other publications from OSFI include a guideline on climate risk management, a departmental plan for 2023-2024, and a statement announcing that it is taking temporary control of the Canadian branch of the Silicon Valley Bank.
The guideline (B-15) on climate risk management sets out principles-based expectations for the sound management of climate-related risks for federally regulated financial institutions. It currently has two chapters, one on governance and risk management and the other on financial disclosures of climate risk. The guideline will be effective fiscal year-end 2024 for domestic systemically important banks (D-SIBs) and for the Internationally Active Insurance Groups (IAIGs) headquartered in Canada. For all other in-scope federally regulated financial institutions, the guideline will become effective at fiscal year-end 2025. Institutions are expected to conform with the disclosure requirements set out in the guideline. OFSI may update these disclosure expectations when the International Sustainability Standard Board (ISSB) publishes its Standard IFRS S2 Climate-related Disclosures. Below are the key expectations set out in the guideline:
- Institutions should use climate scenario analysis to assess the impact of climate-related risks on its risk profile, business strategy, and business model. In addition to the own internal climate scenario analysis to understand the resilience of their business model and strategy, institutions will be required to complete standardized climate scenario exercises and report their results to OSFI on a periodic basis.
- Institutions should incorporate climate-related risks into the Internal Capital Adequacy Assessment Process (ICAAP) process and the liquidity risk profile, integrating a range of institution-specific and market-wide severe, yet plausible, climate-related stress events when assessing the adequacy of its liquidity buffer.
- Institutions should integrate climate-related risks into the Risk Appetite Framework and the Enterprise Risk Management framework.
- Institutions are expected to implement the expectations in Annexes 2-1 and 2-2 of this guideline effective the fiscal periods ending on or after October 01, 2024, 2025 and 2026, as applicable. Institutions may voluntarily early adopt disclosure expectations. Annex 2-1 sets out expectations on greenhouse gas emissions accounting while Annex 2-2 sets out expectations on the minimum mandatory climate-related financial disclosure expectations
The Departmental Plan for 2023-2024 sets out the following key work activities of OSFI for the coming year:
- establishing next-generation data strategy, named “Vision 2030,” which will transform the use of data and analytics to encompass its business activities and provide new opportunities
- furthering the Data Collection Modernization initiative, which aims to modernize the definition, collection, transformation, and use of regulatory data
- developing and executing an enterprise data literacy strategy to make data and analytics an integral part of operations and decision making
- issuing draft updates to Guideline B-20 - Residential Mortgage Underwriting Practices and Procedures to address mounting risks in the housing sector
- issuing a Digital Innovation Roadmap, risk management clarification on stablecoin, and initiating a Financial Innovation Sandbox
- issuing final Guideline B-10 - Third Party Risk Management and Guideline B-13 - Technology and Cyber Risk Management
- publishing and initiating the Intelligence-led Cyber Resilience Testing (I-CRT) framework
- publishing updated draft E-21 on Operational Risk and Resilience, shifting focus to operational resilience while maintaining key principles of operational risk
- publishing final Guideline B-15 on Climate Risk Management, along with results of climate risk scenario exercises
- publishing draft Culture & Behavior Risk Guideline, establishing key principles and proposed outcomes, along with a related self-assessment tool
- releasing the OSFI Annual Risk Outlook in Summer 2023 to detail the risks facing financial system in Canada
- Graft Guideline on Culture and Behavior Risk
- Guideline on Climate Risk Management
- Departmental Plan for 2023-2024
- Statement on Silicon Valley Bank
Keywords: Americas, Canada, Banking, Basel, Reporting, ESG, Climate Change Risk, Disclosures, Scenario Analysis, Governance, Culture and Behavior Risk, Data Strategy, Regtech, Suptech, Liquidity Risk, OSFI
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