OSFI announces enhancements to its supervisory framework

OSFI has announced enhancements to its supervisory framework, including specific reference to the core principles of the International Association of Insurance Supervisors (IAIS), as well as the inclusion of board responsibility for overseeing risk appetite and compensation.
First introduced in 1999, the supervisory framework describes the principles, concepts and core processes OSFI uses to guide its supervision of federally regulated financial institutions (FRFIs).
“Over the past decade there have been changes in the nature of risks and their management by financial institutions,” OSFI notes in a Feb. 22, 2011 letter to financial institutions, including property and casualty insurance companies. “Recently, OSFI conducted a thorough review of its supervisory framework in light of these developments as well as OSFI’s ‘lessons learned’ through day-to-day experience applying the framework over the past decade.
“This review has resulted in a number of enhancements to the framework.”
The enhancements include:
• The framework now makes specific reference and linkage to the Basel and IAIS core principles, to reflect OSFI’s adoption of these.
• OSFI has enhanced its assessment of liquidity at federally regulated financial institutions (FRFIs) by requiring an assessment of liquidity for the FRFI as a whole.
• Approval of a FRFI’s overall risk appetite and oversight of its corporate compensation systems and practices have been explicitly included as part of the board of directors’ responsibilities.
•Actuarial has been added as a new oversight function to recognize its important role in the oversight of risk in financial institutions with insurance business.
“The implementation of these changes to OSFI’s supervisory framework should be seamless to you and your employees,” OSFI says in its letter. “OSFI’s day-to-day supervision will continue to be regularly adjusted based on changes in international regulatory and supervisory standards as well as experience gained.”