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Submitted to:
Office of the Superintendant of Financial Institutions
information@osfi-bsif.gc.ca
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.