Office of the Superintendent of Financial Institutions: August 22 quarterly release
Office of the Superintendent of Financial Institutions Canada
Bureau du Surintendant des institutions financières
August 26, 2024
Introduction
Last week we launched our first quarterly release on August 22, 2024. We are assessing a new standardized approach to the way regulatory guidance is released. Our hope with this initiative is to bring more transparent and predictable and alignment to our regulatory responses with OSFI’s key risks.
First quarterly release
OSFI’s first quarterly release included:
1. Final Guideline E-21 on Operational Risk and Resilience
What: The final Guideline E-21 sets out expectations for operational risk management and establishes new expectations related to:
Why: Non-financial risks can evolve into financial risks if left unaddressed. Identifying, assessing, managing, and monitoring operational risks, therefore, contributes to the safety and soundness of financial institutions. Effective operational risk management also contributes to an institution’s integrity and security by preventing control failures that can be exploited.
When: Final Guideline E-21 was published on August 22, 2024. Our expectations related to operational risk management have been in place since 2016 and, therefore, sections 1 and 2 are effective immediately. Financial institutions are expected to adhere to Section 4 of the guideline by September 1, 2025, with full adherence to the entire guideline by September 1, 2026.
2. Updates to the Life Insurance Capital Adequacy Test (LICAT)
What: The LICAT guideline establishes standards, for measuring specific life insurer risks. It also defines and establishes criteria to determine the amount of available regulatory capital.
Why: In 2023, a new International Financial Reporting Standard 17 (IFRS 17) came into effect in Canada for life insurance companies and LICAT was updated at that time to be consistent with the new accounting standard. The new LICAT guideline enables OSFI to assess an insurer’s financial condition and and whether it has the financial strength to endure periods of stress.
When: A public consultation on draft 2025 LICAT guideline is taking place from August 22 to October 22, 2024, including the following two streams of work:
1) Segregated Fund New Capital Approach with a major revamp of the Seg Fund chapter in the LICAT guideline
2) Non-Segregated Fund changes with minor clarifications and updates on LICAT chapters.
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The final LICAT 2025 guideline will be published on November 21, 2024, and will come into effect on January 1, 2025.
3. Consultation on the public disclosure of financial institutions’ crypto-asset exposures
What: We are consulting on proposed amendments to our Pillar 3 Disclosure Guidelines. Public disclosures allow stakeholders to better understand and compare the risk profile of institutions.
The consultation will provide industry with an opportunity to provide feedback on our crypto-asset disclosure expectations.
Why: Digital innovation is transforming how we transact, manage money, and think about value. But it also presents risks to our financial system. Federal Budget 2023 announced that OSFI would consult on guidelines for FRFIs on publicly disclosing their exposures to crypto-assets, with the goal of protecting Canadians’ savings and the security of our financial sector. Public disclosures enhance transparency and comparability of data and promote market discipline for a safer financial system.
When: Crypto-asset disclosures would become effective for fiscal Q1 2026 reporting period, in alignment with the Basel Committee on Banking Supervision’s standard.
4. 2024 Memorandum to the Appointed Actuary
What: Our 2024 Memorandum to the Appointed Actuary:
Why: An Appointed Actuary’s (AA) report (called AAR) is mandatory with a company’s annual return (Insurance Companies Act). The AA must report on the valuation of the liabilities to the shareholders and policyholders, at least 3 weeks before the annual meeting. They must state whether, in their opinion, the annual statement presents fairly the results of the valuation and finally the report must be peer reviewed. Doing so contributes to the safety and soundness of insurance companies by providing us insight into how the insurer determines its liabilities.
When: The final 2024 Memorandum to the Appointed Actuary is now in effect.
Industry day
The first three policy releases will be discussed at our first industry day on Thursday, September 5, 2024, where you’ll be able to take a deep dive into the new regulatory guidance that has been released . OSFI experts will be on hand to lead you through some details and answer any of your questions. We encourage you to register here.
Questions
Send us your questions for industry day by email at Registration-Inscription@osfi-bsif.gc.ca.