Effective supervisory oversight just as important as enforcing rules: OSFI superintendent

Canada’s solvency regulator says effective supervisory oversight is just as important as the imposition of rules when it comes to the regulation of financial services.
Julie Dickson, superintendent of the Office of the Superintendent of Financial Institutions (OSFI), weighed in with her observations of what makes for an effective regulatory apparatus when speaking in March in New York.
She noted many international regulators have responded to the financial crisis by creating new rules to prevent another occurrence. But equally important is effective supervisory oversight, she said.
Dickson defined supervision as “the essential task of figuring out whether there could be a breakdown in risk management controls at an institution, and whether the culture of the institution and its appetite for risk will create dangers that could lead to insolvency.”
Specifically, she added, “supervisory oversight is about the kind of attention financial institutions receive from supervisors on a regular basis. It is about the questions we [regulators] ask, what we say to institutions, how we say it, the type of information we request, the people we ask to meet, how we deal with push back, what we do when we go onsite or otherwise deal with an institution, the extent to which we tick boxes or think about the core risks and how they are being managed.”
Dickson likened supervisory oversight to the role of a referee in a sport. The role of the referee, she observed, is greater than that of simply blowing the whistle and enforcing the rules.
Referees “talk to players and coaches about what is expected, what is acceptable and not acceptable, and what situations they will be watching given past experience,” Dickson said in the prepared remarks of her speech.
“They know the personalities of the players in the game, they use carrots and sticks, give some players the benefit of the doubt, and give others no room at all.
“The rules are important, but ultimately it is the referees that control the flow of the game.
“So in crafting new international rules for the financial sector, we need to start focusing on the role that day-to-day supervisory oversight plays, because rules are just one part of the equation.
“A financial sector with strong regulatory rules, but with weak supervisory oversight, is not a safe and sound financial sector.”