OSFI calls on board members to help avert next financial crisis

Board directors of financial institutions “need to take better ownership for averting the next [financial] crisis,” says Canada’s solvency supervisor.
This means board directors should take a more active role in supervising and the risk management decisions of corporate management, said Ted Price, assistant superintendent of the supervision sector office at the Office of the Superintendent of Financial Institutions (OSFI).
Price made his remarks in a speech to the Risk Regulation Summit at Riskminds USA 2010 in Cambridge, Massachusetts.
“Expectations for boards are rising,” Price said. “Deeper understanding of the business of modern banking [Price also directed his remarks at insurers], greater time commitments and more ongoing, constructive engagement with management is required.
“The old excuses — the risk is too complicated, I don’t want to second-guess, I don’t have enough time — just aren’t good enough anymore.”
Boards need to be risk-literate, Price said. Directors need a clearer understanding of the types of risks facing the institution, and the techniques used to measure and manage those risks.
If that means board members end up challenging the decisions of management executives more often, that’s not necessarily a bad thing, Price suggested.
“In the past, some boards have felt that it was not appropriate for directors to engage management regarding risk,” Price said. “That it would require too much education and discussion.
“This implies that risk management is too complex for the board and that it cannot be explained simply, or understood.
“If this is the case, then why be in that business? In any other industry, it would not be okay for directors to say: ‘We don’t understand the risks, but let’s go into that business anyway.’”