Call up # 59017-150012/001/CY
Requisition Reference #: 59017-150012
Call-up date: 2015.07.17
POR 020-15
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Submitted to:
Office of the Superintendent of Financial Institutions (OSFI)
information@osfi-bsif.gc.ca
www.osfi-bsif.gc.ca
Delivery date: May 2016
Prepared by The Gandalf Group
The primary objective of the research is to explore impressions of OSFI in the discharge of a number of key elements of its mandate as a prudential regulator of deposit-taking institutions, including guidance, supervisory activities and the approvals process.
Findings are based on a total of 41 telephone or in-person interviews completed among CEOs, CFOs, CROs, CCOs and Legal Counsel and other senior executives of deposit-taking institutions. Of these interviews, 37 were conducted in English and 4 were conducted in French. Interviews were undertaken from November 23, 2015 through March 23, 2016. The average interview length was 60 minutes.
A more detailed description of the methodology is provided in the report.
This consultation employed a qualitative methodology. While the findings provide an indication of participants’ views about the issues explored, they cannot be generalized to the full population of senior executives of federally regulated deposit-taking institutions. The findings from this research are intended to provide themes and direction.
Overall Impressions
Consistent with the 2012/2013 DTISC, OSFI is perceived to be professional, open, transparent and dialogue-based. These elements of OSFI’s culture are viewed as having been pivotal in contributing to a positive and constructive working relationship between Canada’s federally regulated DTIs and OSFI.
A number of new themes emerge in 2015/2016 regarding OSFI’s characteristics and its interaction with Canada’s DTIs:
Focus On Risk
OSFI’s risk focus is considered appropriate in the main. Examples provided by participants include cyber risk, mortgage/ real estate risk, interest rate risk, risk associated with consumer debt, and risk associated with the oil and gas sectors.
Guidance
OSFI’s guidance consultations are lauded as an effective means of engaging DTIs in guidance development. Many DTIs believe that they have been engaged by OSFI on all the major guidance issues of relevance to the sector. OSFI’s use of the Canadian Bankers Association and Trust Companies Association of Canada as a means of obtaining input from DTIs is considered effective. Domestic systemically important banks (DSIBs) believe that bi-lateral discussions that have occurred with OSFI prior to the finalization of guidance enhance constructive dialogue and are strategically valuable. They encourage OSFI to continue these bi-lateral discussions in future guidance development. Most find that sufficient time is allocated to allow DTIs to provide feedback on draft guidance. Overall, final guidance is viewed to be clearly written.
Supervision
Much of the commentary regarding supervision is strongly positive. Supervisory staff are viewed to have a depth of understanding of market issues, to be well-versed regarding the entities they are examining and to make efforts to take individual DTI characteristics into account in the supervisory process.
Small and Mid-Sized Institutions
Among the segment of participants who have had direct interaction with the Small and Mid-Sized (SMS) Advisor and the SMS team, there is a sense that this group is advocating for, and working to enhance, regulation that takes into account the nature, size and complexity of smaller DTIs.
Communications
This is generally perceived to be an area of strength for OSFI. There is a sense that OSFI staff members make themselves available, engage in regular, open and transparent communication. Quarterly meetings are mentioned as a valuable part of fostering open lines of communication with OSFI. Some go further to suggest that ad hoc, bi-lateral conversations with OSFI serve to significantly strengthen the relationship because these conversations allow the regulated entities to learn more about OSFI’s expectations.
Approvals
This is perceived to be a particular area of strength for OSFI. Members of OSFI’s approvals group are considered to be accessible and responsive to the time sensitivity of many approval requests. Further, OSFI’s expectations regarding approval submissions are found to be clear.
Overall Impressions
Concerns noted in the 2012/2013 DTISC that OSFI adopts international regulatory initiatives prior to other jurisdictions, and does not sufficiently refine such guidance to conform to the needs of the Canadian marketplace, re-emerge in the 2015/2016 consultation. Some participants suggest that OSFI is introducing “best practices” (selecting the highest standards for compliance and imposing these on other institutions) into the supervisory process, which forces the adoption of approaches or practices that they believe are unnecessary or inappropriate for their institutions. Both large and smaller institutions believe that this practice goes beyond the mandate of the regulator and represents a prescriptive, one-size-fits-all approach to regulation.
Focus On Risk
While OSFI is seen as focused largely on appropriate areas of risk, other areas such as shadow banking, non-federally regulated entities in the DTI sector, and FinTech represent risks upon which many believe OSFI should be placing greater focus. The perceived growth in shadow banking and FinTech organizations, combined with the perception that such entities are held to far less onerous regulatory standards, are believed to be fostering an uneven playing field that disadvantages Canada’s federally regulated DTIs and introducing systemic risk into the financial sector.
Guidance
While OSFI’s guidance consultations are viewed as exemplary, there is a sense among some participants that input from small DTIs is either not sought, or is not taken into account sufficiently, in the consultation process. Participants suggest that OSFI continue to enhance its communication about the rationale behind its guidance. Some participants assert that with a greater understanding of OSFI’s thinking, institutions are better equipped to effectively and efficiently develop their submissions in response to guidance.
Supervision
Some argue that regulatory compliance has become excessive for smaller institutions such that it is introducing regulatory risk into the sector. It is believed to be weakening competitiveness for some institutions, limiting the ability of small institutions to expand and/or to pursue additional business lines, and, leading certain entities to consider leaving the country and others to reject expansion in Canada.
Small and Mid-Sized Institutions
There is limited awareness of OSFI’s SMS initiative. Of the smaller institutions that are aware of the SMS initiative, many believe that OSFI has yet to fully act on scaling guidance and supervision for smaller institutions with distinctive product lines or structures. This is viewed as a disappointment, particularly in light of the expectations created by the announcement of the SMS initiative. Smaller institutions are seeking the SMS function to play a more assertive role on their behalf.
The cost of this research was $62,064.12 (HST included).
The research findings will help OSFI assess how well it is achieving its mandate overall and will enable OSFI to improve on performance, as required, in its regulatory and supervisory activities as they pertain to federally regulated deposit-taking institutions.
I hereby certify as Senior Officer of the Gandalf Group certifies that the deliverables fully comply with the Government of Canada political neutrality requirements outlined in the Communications Policy of the Government of Canada and Procedures for Planning and Contracting Public Opinion Research. Specifically, the deliverables do not contain any reference to electoral voting intentions, political party preferences, standings with the electorate, or ratings of the performance of a political party or its leaders.
Alex Swann
Vice-President, The Gandalf Group
Background
OSFI has commissioned consultations with senior members of the financial services community to obtain their assessment of OSFI’s effectiveness as a supervisor and regulator since 1998. In 2015, OSFI commissioned The Gandalf Group, an independent research firm, to undertake a consultation with key stakeholders in the deposit-taking institution (DTI) sector in order to explore perceptions of OSFI. The consultation comprised a series of confidential interviews with senior executives from DTIs regulated by OSFI. The consultation comprised a series of 41 confidential interviews among senior executives of Canada’s deposit-taking institutions.
Research Objectives
The primary objective of the research was to obtain impressions about how OSFI discharges key elements of its mandate as a regulator of federally regulated deposit-taking institutions. More specific objectives were to obtain impressions of OSFI’s overall performance, OSFI’s effectiveness in the areas of guidance, supervision and approvals, areas of risk specific to the deposit-taking institution sector on which OSFI should focus, and areas in which OSFI might improve.
Sample
OSFI provided The Gandalf Group with a list of names and contact information for 87 deposit-taking institutions. The Gandalf Group recommended a sampling plan to OSFI. The plan sought to ensure representation of CEOs, CFOs, Counsel, CROs and CCOs across deposit-taking institutions. The Gandalf Group then randomly selected potential interviewees from a subset of domestic systemically important banks (DSIBS), and the remaining smaller institutions.
Recruitment of Participants
The Deposit-taking Institutions Sector Consultation followed the methodological approach employed in prior consultations undertaken on behalf of OSFI: qualitative, semi-structured, one-on-one interviews. This qualitative approach provides a depth of insight that is unachievable through other research methods, in particular, through strictly quantitative surveys. One-on-one interviews allow deep probing into underlying assessments of OSFI’s effectiveness.
The Interviews
The Gandalf Groupsent selected potential interviewees a package containing an invitation letter from the Superintendent of OSFI, as well as a copy of the interview guide to allow potential interviewees to think about the issues to be discussed during the interviews. Following distribution of the package, The Gandalf Group’ssenior consultants contacted their respective interviewees to confirm their willingness to participate in the consultation and to set a date and time for an interview, as appropriate. No monetary incentives were offered to participants. In a majority of the cases, interviews were undertaken on-site at the participant’s office. However, telephone interviews were conducted if requested by the participant or the participant’s location made an in-person interview unfeasible (i.e., outside of the Montreal or Toronto areas where the interviewers are located).
Number and Average Length of Interviews
The qualitative research findings in this report are based on a total of 41 in-person or telephone interviews completed among CEOs, CFOs, CROs, CCOs and Legal Counsel, as well as other senior executives designated as interviewees by participating institutions. In total, 47 individuals participated in the consultation: in some cases, more than one individual from an institution participated in an interview. In other cases, the participant provided feedback from a number of senior executives whose views had been canvassed prior to the interview. Participants were offered an interview in the official language of their choice. Thirty-seven interviews were conducted in English and four in French. The average interview length was 60 minutes. Interviews were not audio-recorded. Rather, interviewers took detailed notes of the responses provided for each of the questions in the interview guide.
Dates of Interviews
Interviews were undertaken from November 23, 2015 through to March 23, 2016.
Composition of Consultation Participants
The composition of the institutions and individuals interviewed is outlined in the following table.
| Size of Institution | Number of interviews |
|---|---|
| Large deposit-taking institutions | 13 |
| Small and medium-sized deposit-taking institutions | 28 |
| Type of Institution | Number of interviews |
| Domestic banks of trust companies | 27 |
| Foreign banks (full or branch) | 14 |
| Title/Position of interviewee | Number of interviews |
| CEOs | 12 |
| CFOs | 11 |
| Legal counsel | 2 |
| CROs | 7 |
| CCOs | 7 |
| Other representatives designated by DTIs | 2 |
Qualitative Research Caution
The research conducted was qualitative in nature. As such, the results provide an indication of participants’ views on the issues explored but cannot be generalized to the full population of senior executives representing those deposit-taking institutions regulated by OSFI. Rather, the findings from this research provide themes and direction. The findings cannot be used to estimate the numeric proportion or number of individuals in the population who hold a particular opinion because they are not statistically projectable.
Q1: Overall, how satisfied are you with OSFI as the principal prudential regulator and supervisor of Canada’s financial services industry?
Satisfaction with OSFI is widespread. Consistent with the findings from the 2012/2013 Deposit-Taking Institutions Sector Consultation (DTISC), participants believe that OSFI has developed a culture of transparency, dialogue, collaboration and professionalism in its interactions with deposit-taking institutions (DTIs). This culture is viewed as the foundation for a constructive and positive working relationship between the regulator and Canada’s federally regulated DTIs.
Beyond culture, several additional themes come to the fore in the 2015/2016 consultation:
The new Superintendent is perceived to have set a positive tone in his interactions with federally regulated DTIs. The Superintendent’s background is believed to be an asset in his role as Superintendent. There is a perception that his depth of understanding of the “business” dynamics of Canada’s DTIs serves him well in these interactions. Based on communication to date from the Superintendent, a number of DTIs express optimism, if not an expectation, that OSFI will no longer be an early adopter of international regulatory initiatives and also that it will seek to refine such initiatives to fit the Canadian financial services environment. This is viewed as a strongly positive evolution in OSFI’s approach. While optimism is apparent, there remains a perception that OSFI has been taking a “boy scout” approach by adopting international initiatives earlier than other jurisdictions.
OSFI is perceived to take a one-size-fits-all approach to guidance and supervision. This perspective is articulated by both large and smaller institutions:
Q5: What one or two things does OSFI need to improve upon as a regulator and supervisor?
An often noted recommendation among smaller institutions is the need for OSFI to be sensitive to the size and complexity of the entities it regulates in both its guidance and its approach to supervision. Some believe that OSFI has already begun to exhibit this sensitivity. However, others feel that an adaptive approach to regulating smaller institutions needs to become more formalized and pervasive within OSFI. These institutions believe that a lack of recognition by OSFI of the impact of its regulatory approach on small institutions has several important implications:
The remaining responses to this area of exploration are disparate. A number of themes emerge, although each tends to be mentioned by a relatively limited group of participants. The first is a perception that OSFI is becoming more prescriptive leads some to suggest that OSFI should resist this tendency. The second is that some suggest that OSFI should avoid guidance and supervision practices that lead it into areas of responsibility that are beyond its mandate (e.g., governance practices that push into areas considered the responsibility of management, best practice implementation at the supervisory level).
Q2: How would you assess OSFI with respect to how proactive it is in responding to emerging issues pertaining to the deposit-taking sector?
Opinions are mixed as to whether the regulator can be characterized as “proactive”. Many believe that OSFI is focused on the same concerns as those the deposit-taking sector has had in its sights.
Some believe that the regulator has indeed been proactive in responding to a number of key emerging issues. These include:
Others note that OSFI appears to have been reactive to a number of issues, particularly those that are raised in the press. Finally, a number of institutions believe that OSFI has been slow to respond to two particular emerging areas of risk: non-regulated “shadow banking” entities and payments disruptors such as Apple Pay.
Although somewhat outside the scope of this area of probing, a number of participants saw this question as an opportunity to express concern that OSFI has been too proactive in adopting international initiatives. They feel that OSFI does not need to be on the “bleeding edge” of regulatory implementation as it may competitively disadvantage Canadian institutions and/or require the allocation of significant resources and associated costs. An example of this is the early implementation of Basel III and IV models by OSFI, which is viewed as problematic in light of the recent push for the introduction of standardized floors.
Q3: How would you assess OSFI on the extent to which it focuses on the appropriate areas of risk in the deposit-taking sector?
Overall, most participants tend to have positive or moderately positive impressions of OSFI’s risk focus. They identify these areas of focus to be:
Q4: What one or two risk areas do you believe should be priorities for OSFI in the next couple of years pertaining to institutions in the deposit-taking sector?
Cyber risk dominates the list of priority risk areas. Many participants identify shadow banking in this context, with some suggesting that OSFI has not been sufficiently focused on, or responsive to, the risks associated with this sector of the financial services industry. A significant group of institutions believes disruptive technologies (FinTech), in particular payment technologies, should be a risk priority for OSFI. For some, these technologies represent not only a potential risk, they also reflect the velocity of change in the marketplace. For this group, pace of change represents significant risk to the financial system. As such, there is an expectation that OSFI must keep abreast of these issues and be nimble in its responses. That said, there is also a perception that it should resist any tendency to act in a reactive manner.
Risk areas identified on a less frequent basis include:
Q6: How would you assess OSFI with respect to responding in a timely manner to market developments or to industry suggestions that guidance needs updating?
Impressions of OSFI on this issue are generally positive and commentary tends to be consistent across larger and smaller institutions. OSFI is seen to be making a good effort in this area. Guideline B-20 and the cyber risk self-assessment tool are offered as examples of OSFI’s timeliness in responding to market developments. Some note that OSFI’s bilateral discussions with institutions and its use of the Canadian Bankers Association (CBA) to engage sector participants have been effective means of canvassing the sector regarding updating guidance. A small group of institutions raised a concern that the length of time between releasing draft guidance for comment and producing the final guidance causes some challenges. This timeframe is considered to be too lengthy, causing some institutions to delay undertaking or implementing internal changes pending release of the final guidance. These delays can be disruptive and costly.
Q7: How would you assess OSFI with respect to consulting with the financial services industry when developing guidance?
This is characterized as an area of strength for OSFI. The process that OSFI has established is considered to be open and collaborative. Further, some specifically commend OSFI for allowing sufficient lead time for the industry to provide feedback. Among many, the CBA is viewed as an appropriate and effective forum through which to share sector feedback on guidance. Further, bilateral discussions between OSFI and individual institutions are considered especially effective as they ensure that issues associated with guidance are well socialized within institutions prior to the finalization of the guidance. Some participants contend that OSFI’s guidance consultations mitigate “surprises” when final guidance is released. The development of Guideline B-20 is seen as an example of how the consultation process has produced effective outcomes for both the regulator and the sector. In the 2012 DTISC, some larger institutions expressed frustration concerning the initial B-20 draft guidance released for comment and consultation. They felt the draft did not reflect a sufficient depth of understanding of the realities of the marketplace. In 2015, by contrast, there is evidence that these same institutions believe that OSFI listened and then modified the guidance in response to concerns raised by the sector, and that this is illustrative of OSFI’s collaborative approach. However, some smaller institutions raise concerns that they do not engage in consultation, either because they are not members of the CBA and/or they believe that their input will hold little weight in guidance development. Consistent with 2012 DTISC findings, these institutions would like OSFI to ensure that its outreach includes smaller institutions in a meaningful way.
Q8: How would you assess OSFI with respect to developing guidance that strikes an appropriate balance between prudential considerations and the need for institutions to compete?
Many believe that OSFI is sensitive to the need to achieve this balance and takes time to listen to the views of the industry on competitiveness. Some suggest that overall, OSFI errs on the side of prudential considerations. Others believe that, while not setting out to limit the competitiveness of Canada’s federally regulated DTIs, OSFI’s guidance holds institutions back in ways that are perceived to be unrealistic or unnecessary to mitigate risk. Liquidity requirements are cited by a few institutions as an example of how smaller institutions are disadvantaged competitively relative to larger FIs. Regulatory compliance requirements are believed by smaller institutions to have resulted in regulatory overburden, which is having a negative effect on their competitiveness, including the ability to grow and develop new product lines. In this context, a number of larger institutions raise a concern about the competitive impact of entities that do not come under OSFI’s regulatory purview. These non-federally regulated entities and “shadow banking” entities are perceived to be creating risk in the system.
Q10: Overall, how satisfied are you with the consultative process OSFI followed in the development of the Leverage Requirements Guideline?
A number of institutions indicate that the Leverage Requirements Guideline was not relevant or had only minimal relevance to their business lines and, as such, they were not engaged in the consultation process. For those who participated in, or are aware of the consultation, OSFI is viewed as having facilitated open and constructive dialogue about the draft guidance. Large institutions express satisfaction with the process due to the opportunity to engage in both bilateral discussions with OSFI and those held with the CBA. The feedback from smaller institutions is more diverse. Some feel that they did not have sufficient opportunity to participate in the consultative process. A few observe that the guideline was based on Basel standards, and, as such, the discretion that OSFI actually had in revising the guideline was limited. Consistent with earlier commentary about OSFI consultation processes, some participants note that because of the comprehensive consultation process OSFI followed in developing the Leverage Requirements Guideline, there were no surprises in the final guidance. This is considered both constructive and valuable.
The following two questions focus on communications with the industry regarding the Liquidity Adequacy Requirements (LAR) Guideline.
Q12: Were you aware that OSFI provided a summary of stakeholder comments and an explanation of how OSFI dealt with these issues in the final Guideline?
Q13: How effective was the summary in communicating the decisions OSFI took on the issues raised by stakeholders regarding the Liquidity Adequacy Requirement Guideline?
Almost one-half of participants indicate that they were not aware of the summary. However, a small group of these participants note that they have not concerned themselves with the guideline as they do not take deposits.
Overall, those who are aware of the summary indicate that they found it to be effective. The summary was also the subject of favourable comment because it suggests that OSFI has taken into account at least some of the feedback offered by the sector. Further, some note that it provides greater insight into OSFI’s rationale for the guidance, which assists with interpretation and compliance. Some large institutions express concern that OSFI did not take into account feedback from the sector in the final guidance.
Q9: Overall, how effective do you think OSFI’s guidance is in providing a clear indication of OSFI’s expectations?
This area of exploration reveals a split in opinions. Among large institutions, OSFI’s expectations are generally viewed to be clear. OSFI’s principles-based approach facilitates institution-specific responses to guidance. Where there may be questions about the guidance, larger institutions feel that OSFI has been receptive to hearing, and responsive in discussing, potential areas of uncertainty. Particularly among the smaller institutions, some observe that while guidance appears to be clear in the documentation, there are a number of factors that make it challenging to apply. Some participants believe that OSFI has a pre-determined set of threshold expectations for compliance with some guidance. As such, OSFI is not perceived as holding to its principles-based approach to regulation. Some also contend that OSFI expects a large-institution approach to be taken in complying with certain pieces of guidance. Among both large and smaller institutions, some believe that OSFI, in its supervision of institutions, identifies best practices that it then expects other institutions to follow. These institutions feel that, in so doing, OSFI does not take into account the nuances of the operations and approaches of the different DTIs. There is a call from both large and small institutions for OSFI to further enhance its communications regarding the rationale for new guidance. These participants suggest that a clear understanding of OSFI’s rationale allows institutions to more easily and effectively discern how to provide OSFI with an appropriate response. FAQs are viewed by some as an effective means of assisting institutions with interpreting and responding to guidelines.
Q11: Thinking of the final Leverage Requirements Guideline, how effective was OSFI in communicating its expectations to the industry regarding the replacement of the Assets to Capital Multiple and the adoption of the Basel III leverage ratio as set out in the Leverage Requirements Guideline?
Participants for whom the guideline is applicable indicate that OSFI’s expectations have been clearly conveyed. Some commented favourably on the clarity of the guideline itself. Others note that the timeline for implementation has been appropriate.
Q14: Overall, how effective do you think OSFI is in supervising your institution (e.g., ongoing monitoring, on-site reviews including supervisory recommendations, reporting requirements, etc.)?
Evaluations of OSFI’s supervision are very positive. In its supervisory role, OSFI is described as professional, encouraging open dialogue, focusing on the appropriate areas of risk, and, understanding the nature of the institutions it regulates.
The remaining feedback tends to be more disparate in nature and includes the following issues:
Q15: How would you assess OSFI with respect to providing an opportunity for your institution to discuss issues of concern with OSFI prior to OSFI coming to a conclusion?
Overall, OSFI is viewed as responsive to issues of concern raised by deposit-taking institutions. The regulator is viewed as approachable and exhibiting a willingness to listen to concerns. Regular meetings/calls are viewed as facilitating an opportunity to discuss issues as they arise. Within this context, Lead Supervisors are viewed as responsive. OSFI is viewed as genuinely taking issues raised by institutions into account in its deliberations.
Q22: How would you assess OSFI on the extent to which it supervises (e.g., ongoing monitoring, on-site reviews including supervisory recommendations, reporting requirements, etc.) in a manner that is scaled to reflect the nature, size and complexity of your institution?
Opinions tend to vary regarding the extent to which OSFI supervises in a manner that is scaled. Several institutions report that they have not had an on-site review in some time; and that they do not feel able to comment. A small group evaluates OSFI’s supervisory process as one that does take into account size, nature and complexity. They appreciate that OSFI is sensitive to the characteristics of their institution and feel their reporting requirements are adjusted accordingly. (Regular meetings with Lead Supervisors are believed to be a factor that contributes to an understanding of an institution’s attributes.) By contrast, others suggest that the reporting requirements for smaller institutions are relatively onerous. As noted previously, there is a perception among some that smaller institutions are inappropriately held to a “big banks” standard in terms of the scope and depth of reporting that they are required to fulfil. Some view compliance requirements as inconsistent with their institution’s complexities. The extent of compliance requirements are seen as placing undue stress on the resources of these institutions.
Q16: Have you had any dealings with your Lead Supervisor (formerly known as Relationship Manager) over the past 12 months?
With one exception, all institutions indicate that they had had dealings with their Lead Supervisor (LS) within the past 12 months.
Q17: How would you assess the overall knowledge level of your Lead Supervisor (e.g., knowledge of legislation, OSFI guidelines, regulatory policy and supervisory practices; deposit-taking sector issues and risks; your institution)?
Evaluations of LS knowledge levels are generally positive, with no difference in assessments by institution size. The perceived depth of LS knowledge appears to have improved compared to findings from the 2012/2013 DTISC. Participants generally feel their LS has a good grasp of their institution and its business line(s). Further, Lead Supervisors are often described as accessible and responsive when information or feedback is required.
Q18: Thinking about your institution’s interactions with your Lead Supervisor, what, if anything, do you believe needs to be improved?
About half of participants feel that nothing requires improvement here. Recommendations that do emerge tend to gravitate around two themes. It is important for Lead Supervisors to socialize issues within an institution as quickly as possible to mitigate the perception of surprises. Lead Supervisors should seek to flag as early as possible any issues or concerns that will require extensive institutional resources. A number of institutions took the opportunity to bring forward a frustration about LS turnover in response to this question. They indicate that their resources are taxed by the need to educate each new LS about the nuances of the institution’s business. On another note, some small institutions see themselves as the training ground for new or less experienced Lead Supervisors, which they feel places part of the onus for training on them.
In 2014, OSFI appointed a small and mid-sized advisor who engages industry representatives to help address some of the challenges with respect to regulatory burden faced by small and mid-sized deposit-taking institutions, where feasible. The following questions pertain to DTI’s experience (where applicable) with OSFI as a small or mid-sized institution.
Q19: How, if at all, have your communications and/or interactions with OSFI changed over the past year?
A number of smaller institutions report that they are not aware of the Small and Mid-Size (SMS) initiative. Others are aware of the initiative but indicate that they have seen no evidence of its effect on OSFI’s operations. Some of these institutions assume that this initiative is in its infancy and anticipate it will take some time before the benefits become apparent. Some suggest that simply through recognizing the need for an initiative of this nature, OSFI has advanced its thinking about the regulation of smaller institutions in a positive manner. A small group, however, is disappointed because the initiative does not seem to them to have had a tangible effect on OSFI’s approach to regulating smaller institutions. They believe that expectations have been raised but that the initiative lacks teeth. A relatively small group offer positive feedback regarding the impact of SMS to date. A few indicate that they have benefited from direct contact with the appointed advisor and the SMS group and that they have had an opportunity to communicate their issues and concerns. A few find direct access to the Superintendent at SMS forums to be one of the main benefits of the initiative. A few also observe that OSFI now appears to be administering its regulatory framework in a manner that recognizes the characteristics of their institution.
Q20: How would you assess OSFI’s guidance on the extent to which it considers the nature, size and complexity of financial institutions?
Q21: How would you assess OSFI on the extent to which it applies guidance in a manner that is scaled to reflect the nature, size and complexity of your institution?
Some participants observe that OSFI’s guidance specifically states that it considers the nature, size and complexity of financial institutions. However, when probed regarding the extent to which guidance is applied in a manner that is sensitive to their institution’s characteristics, opinion is divided.
As noted earlier, a number of smaller institutions indicate they have not found OSFI’s supervisory approach to be entirely consistent with what is articulated in the guidance related to nature, size and complexity. They believe that their institutions are held to standards set for larger institutions.
A small group argues that smaller institutions with mono-lines or those that do not take deposits should receive regulatory relief from certain pieces of guidance. A few recommend that a third category of deposit-taking institutions should be created, with corresponding regulatory requirements.
Q23: Overall, how would you assess OSFI with respect to responding to questions your institution has brought forward concerning final OSFI guidance (e.g., consistency, clarity, timeliness)?
Q24: Overall how would you assess OSFI’s response to enquiries your institution has brought forward about supervisory matters (e.g., consistency, clarity, timeliness)?
For the most part, OSFI is evaluated very positively on this measure with the responses to this area of exploration among the most positive overall.
OSFI is characterized as accessible, responsive, timely in responding and clear in the responses provided.
Q25: Overall how would you assess OSFI with respect to responding to questions your institution has brought forward concerning a specific risk area (e.g., credit, corporate governance, AML, operational risk, etc.) (e.g. consistency, clarity, timeliness)?
A number of participants indicate that they have not needed to contact OSFI with questions regarding specific risk areas. Among those who have contacted OSFI, assessments of OSFI’s responsiveness are generally positive. Several participants note that, in particular, their inquiries regarding liquidity were handled well. A few also mention those in the AML area of OSFI as having provided efficient and clear responses. There are, however, a number of concerns raised about AML compliance in this context. This is particularly the case among smaller institutions. The AML compliance requirements are perceived to be disproportionately high relative to the risk they are intended to address. Some recommend that OSFI and FINTRAC should coordinate their reporting requirements to minimize duplication in AML compliance.
Q26: Overall, how would you assess OSFI with respect to its written correspondence (e.g., clarity; timeliness; and consistency between written and oral communications)?
OSFI’s written correspondence is generally viewed as clear and timely. A few large institutions suggest that in some cases there has been a discrepancy between OSFI’s oral communications and its written reviews.
Q27: Thinking about your dealings with OSFI’s staff on any supervisory or regulatory matter, how satisfied are you with OSFI’s capacity to interact with you in the official language of your choice (i.e., English or French)?
Almost all participants report that their dealings with OSFI in the language of their choice have been satisfactory. A few, however, indicate that they would appreciate it if the specialty groups were more conversant with French.
Q27b: [If dissatisfied] In which areas are you are dissatisfied (e.g., OSFI’s capacity to speak, write or read materials in the official language of my choice)?
Due to the very limited number of responses to this question, no further detail can be provided without compromising the anonymity of the participants who have brought forward concerns.
Q28: Has your institution made a request for a regulatory approval in the past 1-2 years?
Q29: Overall, how satisfied are you with OSFI in processing applications for your institution?
Nearly half of participants did not provide feedback as they have not engaged in the approvals process in the recent past.
Among those with an opinion, most report being very satisfied. OSFI is viewed as timely and responsive in processing applications.
Among the limited group expressing some level of dissatisfaction, several issues are noted. There is a perceived discrepancy in how OSFI responds to different types of applications, with some perceived as proceeding less smoothly than others. Model approvals were singled out in this regard. A few participants mention that they believe OSFI may be struggling with capacity issues when it comes to model assessment and approval. The approvals process is reported to have been lengthy for these applications.
Q30: How would you assess OSFI with respect to communicating its expectations as it relates to the information required in support of processing a request for a regulatory approval?
Among participants who felt able to comment, almost all report OSFI is clear in communicating its expectations during the regulatory approval process. Participants indicate that OSFI has done a good job in engaging with them in dialogue when necessary.
Q31: How well do you understand the basis on which OSFI makes decisions about your institution’s applications?
Most report that they understand the basis on which OSFI makes decisions about their institution’s applications.
Q32: How would you assess OSFI with respect to responding to your institution’s requests for updates on the status of applications?
Most of those who have brought forward requests feel OSFI is quick to respond. These participants note OSFI’s ability to accommodate specific timelines.
Q33: How would you assess OSFI with respect to providing an opportunity for your institution to discuss issues of concern with OSFI prior to OSFI coming to a conclusion?
Most hold positive impressions with respect to OSFI on this measure. Some specifically remark on OSFI’s cooperativeness, transparency and ability to communicate.
I am writing to invite your participation in an important confidential study that is being conducted by The Gandalf Group, an independent research company, on behalf of the Office of the Superintendent of Financial Institutions (OSFI). Since 1998, OSFI has commissioned consultations with senior members of the financial community to obtain their assessment of its effectiveness as a regulator and supervisor. The results of this consultation will help OSFI to improve its performance, which we believe will be of ultimate benefit to you and your organization.
Within the next week, a representative of The Gandalf Group will contact you to arrange a suitable time for an in-person interview of about one hour in length. Prior to the interview, we ask that you review the enclosed interview guide, as it will form the basis of questions you will be asked. Please feel free to canvass your colleagues for their views to obtain a broader perspective, if you feel this would be helpful.
OSFI is committed to a confidential consultation process, which includes ensuring that the identities of those who participate are not disclosed to us. Although I have signed this letter personally, it has been addressed and mailed to you by The Gandalf Group. In addition, the report that OSFI will ultimately receive from The Gandalf Group will include only summary form, non-attributable feedback. The findings from this consultation will be posted on OSFI’s website in 2016.
If you would like to discuss the study at any time during the process, please call Alex Swann, Vice President, The Gandalf Group at (416) 644-4125.
We hope we can count on your participation.
Sincerely,
Jeremy Rudin
Superintendent
The Gandalf Group has been retained by the Office of the Superintendent of Financial Institutions (OSFI) to conduct this consultation with senior executives of federally regulated institutions in the deposit-taking sector.
Since 1998, OSFI has commissioned consultations with senior members of the financial community and their professional advisors to obtain their assessment of its effectiveness as a supervisor and regulator. OSFI is committed to monitoring how well it is achieving its strategic objectives, both to be accountable to stakeholders and to help improve effectiveness. It is for these reasons that we are asking your institution to participate in this research.
You can be assured that The Gandalf Group, as an independent third party, will hold your comments in strict confidence. Your answers will remain anonymous. OSFI will not know who was interviewed or what specific institutions have said about it.
As a standard industry practice, The Gandalf Group has put in place secure communication and usage procedures to ensure that confidentiality is maintained at all times.
The Gandalf Group will provide OSFI with a full report aggregating the findings from this consultation.
1. Overall, how satisfied are you with OSFI as the principal prudential regulator and supervisor of Canada’s financial services industry?
2. How would you assess OSFI with respect to how proactive it is in responding to emerging issues pertaining to the deposit-taking sector?
3. How would you assess OSFI on the extent to which it focuses on the appropriate areas of risk in the deposit-taking sector?
4. What one or two risk areas do you believe should be priorities for OSFI in the next couple of years pertaining to institutions in the deposit-taking sector?
5. What one or two things does OSFI need to improve upon as a regulator and supervisor?
From time to time, OSFI develops Guidance (which may include guidelines and advisories) for institutions in the deposit-taking sector.
6. How would you assess OSFI with respect to responding in a timely manner to market developments or to industry suggestions that guidance needs updating?
7. How would you assess OSFI with respect to consulting with the financial services industry when developing guidance?
8. How would you assess OSFI with respect to developing guidance that strikes an appropriate balance between prudential considerations and the need for institutions to compete?
9. Overall, how effective do you think OSFI’s guidance is in providing a clear indication of OSFI’s expectations?
The following series of questions focus on several different work streams related to Guidance that OSFI has issued in 2014.
The following questions focus on communications and consultation with the industry regarding the Leverage Requirements (LR) Guideline. In connection with the release of the Leverage Requirements Guideline, OSFI issued:
10. Overall, how satisfied are you with the consultative process OSFI followed in the development of the Leverage Requirements Guideline?
11. Thinking about the final Leverage Requirements Guideline, how effective was OSFI in communicating its expectations to the industry regarding the replacement of the Assets to Capital Multiple and the adoption of the Basel III leverage ratio as set out in the Leverage Requirements Guideline?
The following two questions focus on communications with the industry regarding the Liquidity Adequacy Requirements (LAR) Guideline.
In connection with the release of the Liquidity Adequacy Requirements Guideline, OSFI issued:
With the release of the final version of the Liquidity Adequacy Requirements Guideline, OSFI also included a summary of stakeholder comments and an associated explanation of how OSFI dealt with these issues in the final Guideline.
12. Were you aware that OSFI provided a summary of stakeholder comments and an explanation of how OSFI dealt with these issues in the final Guideline?
13. How effective was the summary in communicating the decisions OSFI took on the issues raised by stakeholders regarding the Liquidity Adequacy Requirements Guideline?
The following questions pertain to OSFI’s supervision as it relates to your institution.
14. Overall, how effective do you think OSFI is in supervising your institution (e.g. ongoing monitoring, on-site reviews including supervisory recommendations, reporting requirements, etc.)?
15. How would you assess OSFI with respect to providing an opportunity for your institution to discuss issues of concern with OSFI prior to OSFI coming to a conclusion?
16. Have you had any dealings with your Lead Supervisor (formerly known as Relationship Manager) over the past 12 months?
17. How would you assess the overall knowledge level of your Lead Supervisor (e.g. knowledge of legislation, OSFI guidelines, regulatory policy and supervisory practices; deposit-taking sector issues and risks; your institution)?
18. Thinking about your institution’s interactions with your Lead Supervisor, what, if anything, do you believe needs to be improved?
In 2014, OSFI appointed a small and mid-sized advisor who engages industry representatives to help address some of the challenges with respect to regulatory burden faced by small and mid-sized deposit-taking institutions, where feasible. The following questions pertain to your experience interacting with OSFI as a small or mid-sized institution.
19. How, if at all, have your communications and/or interactions with OSFI changed over the past year?
20. How would you assess OSFI’s guidance on the extent to which it considers the nature, size and complexity of financial institutions?
21. How would you assess OSFI on the extent to which it applies guidance in a manner that is scaled to reflect the nature, size and complexity of your institution?
22. How would you assess OSFI on the extent to which it supervises (e.g., ongoing monitoring, on-site reviews including supervisory recommendations, reporting requirements, etc.) in a manner that is scaled to reflect the nature, size and complexity of your institution?
23. Overall, how would you assess OSFI with respect to responding to questions your institution has brought forward concerning final OSFI guidance (e.g., consistency, clarity; timeliness)?
24. Overall how would you assess OSFI’s response to enquiries your institution has brought forward about supervisory matters (e.g., consistency, clarity; timeliness)?
25. Overall how would you assess OSFI with respect to responding to questions your institution has brought forward concerning a specific risk area (e.g. credit, corporate governance, AML, operational risk etc.) (e.g., consistency, clarity; timeliness)?
26. Overall, how would you assess OSFI with respect to its written correspondence (e.g., clarity; timeliness; and, consistency between written and oral communications)?
27. Thinking about your dealings with OSFI’s staff on any supervisory or regulatory matter, how satisfied are you with OSFI’s capacity to interact with you in the official language of your choice (i.e., English or French)?
27 b) [if dissatisfied] In which areas are you are dissatisfied (e.g. OSFI’s capacity to speak, write or read materials in the official language of my choice)?
As you know, OSFI’s Superintendent, and in some cases, the Minister of Finance, must approve certain transactions or initiatives which institutions in the deposit-taking sector wish to undertake. The following questions pertain to OSFI’s approval process as it relates to your institution.
28. Has your institution made a request for a regulatory approval in the past 1-2 years?
Thinking about request(s) for a regulatory approval your institution has submitted in the past 1-2 years...
29. Overall, how satisfied are you with OSFI in processing applications from your institution?
30. How would you assess OSFI with respect to communicating its expectations as it relates to the information required in support of processing a request for a regulatory approval?
31. How well do you understand the basis on which OSFI makes decisions about your institution’s applications?
32. How would you assess OSFI with respect to responding to your institution’s requests for updates on the status of applications?
33. How would you assess OSFI with respect to providing an opportunity for your institution to discuss issues of concern with OSFI prior to OSFI coming to a conclusion?
34. Are there any other comments or suggestions for improvements you would like to make concerning the issues raised today, or concerning any other issues you feel are particularly relevant at this time?
On behalf of OSFI, The Gandalf Group would like to thank you for your participation.
Recruitment Specifications
Participants were recruited from a list of potential interviewees provided by OSFI. The list provided by OSFI included a total of 87 active deposit-taking institutions.
Execution of Fieldwork
The following process was used in administering the interviews: