What was heard on industry day

Since our last bulletin, we piloted our first quarterly release industry day on September 5. Set two weeks after the August 22 announcement day, the industry day provided more in-depth information to industry professionals. 

OSFI experts gave insights into some of the more notable details of the guidance releases and answered audience questions. In this bulletin, we’ll provide you highlights from those discussions in case you missed it.

Reducing Regulatory Burden

As announced during our August quarterly release, we’ve embarked on a policy review of our guidance. The goal is to prioritize and align OSFI’s policies and guidance with key risks. Streamlining our guidance in this manner  will reduce regulatory burden on the industries we regulate and supervise.

On November 21, 2024, we will post the list of guidelines and advisories to rescind on April 1, 2025.

This is only the beginning. After the November announcement, OSFI will continue working proactively to review our guidance to reduce regulatory burden. This continuous review exercise will help ensure that our guidance remains relevant and will ultimately lead to better and more focussed prudential management. 

Public Disclosure of Crypto-Asset Exposures

Why public disclosures are important

Public disclosures by FRFIs are important because they:

• provide greater transparency
• promote market discipline
• enhance sound risk management 

Prudential disclosures ensure that appropriate information is available for the public to understand the financial condition of institutions and the risks they are exposed to.

Public disclosures are a key pillar of the international standards that we align to in Canada. As part of our membership on international committees, such as the Basel Committee on Banking Supervision (BCBS), International Association of Insurance Supervisors (IAIS) and the Financial Stability Board (FSB), we actively contribute to international disclosure standards.

OSFI's Pillar 3 disclosure framework, in effect today came into effect on August 22, 2024, implements the Basel Pillar 3 framework, including its disclosure principles:

• Clear
• Meaningful
• Consistent 
• Comparable

We apply the expectations on a proportional basis in relation to an institution’s risk profile, nature, size, and complexity.

Public consultation

OSFI launched a public consultation on August 22 related to amendments of pillar 3 disclosure expectations on crypto-asset exposures. They include:

• one set of proposals for domestic systemically important banks (D-SIBs)
• a separate set of proposals for small and medium sized deposit-taking institutions (SMSBs)
• effective date of Q1 2026 fiscal reporting period

Draft versions of the templates on crypto-asset exposures for the Pillar 3 Disclosure Expectations are available for consultation. The table and templates will be added to the existing guidelines and become effective for in-scope institutions for the fiscal Q1 2026 reporting period.

We are seeking your views on the following key questions:

a.           What are your views on applying the Pillar 3 principle of materiality versus the introduction of quantitative thresholds? Please elaborate on how the principle of materiality would be applied in practice for disclosure of crypto-asset exposures.

b.           Would the disclosure of daily average aggregate Group 2a and Group 2b exposures, in addition to period end values, provide meaningful information? Please elaborate.

c.           What are your views on the relevance of liquidity disclosures for crypto-assets and the level of granularity proposed for D-SIBs?

d.           What are your views on the proposal to ensure the proportionality of disclosures by SMSBs?

In addition, we expect to publish relevant crypto-asset regulatory data of all institutions beginning as early as 2026.

Please share your comments by October 22, 2024. You can send them and any questions you may have to Pillar3-Pilier3@osfi-bsif.gc.ca.

Final Guideline E-21 on Operational Risk and Resilience

Background

In September 2020, we released our discussion paper on Developing Financial Sector Resilience in a Digital World, which outlined our preliminary thinking and asked for feedback on technology risk, cyber risk, third-party risk, and data risk.

In July 2021, we wrote a letter to industry asking for views about how we should capture new standards from the Basel Committee on Banking Supervision related to:

• operational risk management (the Principles on Sound Management of Operational Risk)
• operational resilience (the Principles on Operational Resilience) 

With the help of the feedback we received, we revised Guideline E-21 to include both operational risk management and operational resilience. In October 2023, we consulted on a draft of that guideline and released it in its final version on August 22, 2024.

The new Guideline E-21 sets expectations for operational risk management and operational resilience. It also sets new guidance for some specific elements of operational risk management that play a crucial role in operational resilience:

• business continuity management
• crisis management
• change management
• data risk management

What has changed from the E-21 draft version to the final?

• First, we enhanced the guideline’s structure and terminology.
• Second, we made some clarifications related to scenario analysis and testing. Specifically:

o            Scenario analysis should identify and assess the impact, controls, and mitigating actions of operational risks at the business unit level and enterprise wide;

o            Scenario testing should test whether critical operations remain within tolerances for disruption on an end-to-end basis, across multiple business lines, in severe but plausible circumstances;

o            Critical third parties should be involved in scenario-testing on a best-effort basis; 

o            The frequency of scenario-testing should align with risk and criticality, but when significant changes in the risk environment arise, additional testing should take place. 

• Third, we set out a phased implementation timeline.

Timelines

Our final E-21 guideline has a phased implementation. Sections 1 and 2 do not introduce new expectations and are effective immediately. We expect:

• By September 1, 2025

o            Full adherence to section 4. Although the expectations in this section are new, they cover risk categories already addressed by the 2016 guideline on Operational Risk Management. Therefore, institutions should have remediated any gaps by this date.

• By September 1, 2026

o            Full adherence to this guideline. While we recognize that operational resilience programs will mature over time, institutions should have completed identification, mapping and setting tolerances for disruption of their critical operations. Furthermore, institutions should also have developed their scenario testing methodology and begun the testing process so that by September 1, 2027, testing has been completed for all critical operations.

Specific implementation timelines are outlined in our August 22, 2024 operational risk management and resilience letter.

Life Insurance Capital Adequacy Test 2025 - Public Consultation Launch

Our LICAT guideline establishes the standards that we use to assess whether life insurers maintain adequate capital or margins to address risks specific to the life insurance business. 

We use this to

• assess an insurer’s financial health
• protect policyholders and creditors
• contribute overall to the resilience of Canada’s financial system

The LICAT guideline is updated regularly to improve relevancy and clarity.

A public consultation on the draft 2025 LICAT guideline was launched and is taking place until October 22, 2024. Key revisions to the LICAT 2025 guideline include:

• segregated fund new capital approach with a major revamp of the segregated fund chapter in the LICAT guideline
• other changes with minor clarifications and updates to LICAT chapters

The guideline changes will have subsequent impacts on the forms and instructions. Comments can be submitted to LICAT-TSAV@osfi-bsif.gc.ca by end of day October 22, 2024.

Following the consultation period, the final LICAT 2025 guideline will be published on November 21, 2024, and will come into effect on January 1, 2025.