OSFI published the findings of a confidential consultation with the Chief Executive Officers, Chief Financial Officers, and other senior executives of deposit-taking institutions, with the intention to monitor the effectiveness of OSFI in discharging the key elements of its mandate. OSFI had commissioned Sage Research Corporation, an independent research firm, to conduct this consultation. The results reveal that OSFI is effective in ensuring soundness of the deposit-taking sector in Canada, though participants expressed concerns and highlighted the need for certain improvements. The concerns mainly relate to the early adoption of certain international banking standards, the OSFI approach to proportionality, and the issues with regard to implementation of IFRS 9.
The primary purpose of the research was to explore perceptions of the OSFI as the regulator and supervisor of federally regulated deposit-taking institutions. The objectives of the research included assessment of the OSFI guidance to the industry, its supervisory activities, and its approvals process for regulatory approval applications. The consultation comprised a series of confidential interviews with executives representing a cross-section of the deposit-taking institutions regulated by OSFI. Although OSFI is perceived to be effective in the overall discharge of its mandate, the study did reveal some areas for improvement. OSFI appreciates the feedback provided through this consultation and has developed action plans to address areas identified for improvement. The key findings included the following:
- In addition to prioritizing the cyber or emerging technologies and the unregulated financial sector, the more common suggestions included continued focus on enhancing the consideration of deposit-taking financial institutions' nature, size, complexity, and risk profile in guidance and supervision and more consideration to the negative impact of early adoption of international standards, particularly on competitiveness.
- Concerns have been expressed with respect to early adoption of standards that can adversely affect international competitiveness. Going forward, concern was about the early adoption of the Basel III output floor standard, the Fundamental Review of the Trading Book (FRTB), and the Standardized Approach for Measuring Counterparty Credit Risk (SA-CCR). Some said guidance, particularly related to liquidity requirements, sometimes favors domestic systemically important banks (D-SIBs), making it difficult for smaller institutions to compete.
- Some deposit-taking institutions that offer specialized or non-traditional services said OSFI does not sufficiently adjust supervision to their business model or take into account the lower risk profile of their type of business.
- Reporting and compliance requirements are perceived by some to be onerous and disproportionate given the risk profiles and the limited resources at smaller deposit-taking institutions.
- Some D-SIBs used this discussion to voice concerns about the implementation of IFRS 9 on financial instruments. Some believed that OSFI gave different direction to different D-SIBs, resulting in differences in implementation and outcomes. A few attributed this in part to inadequate IFRS 9 subject-matter expertise at OSFI.
- A few expressed a concern that given the different outputs resulting from variability in models and processes across D-SIBs, OSFI will now, after the fact, try to enforce uniformity among the D-SIBs without consideration of the nuances of the operations and approaches of the different D-SIBs.
Keywords: Americas, Canada, Banking, SA-CCR, IFRS 9, Basel III, D-SIBs, Liquidity Requirements, OSFI
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