Speech by OSFI Superintendent Peter Routledge: Looming risks and long-term resilience

OSFI | Apr 27, 2023

Image: Unsplash/Loic Leray

Speech delivered at Economic Club of Canada on April 27

• Re-asserting OSFI’s will to act:  Today I would like to speak with you about how risks facing Canada’s financial system have shifted and heightened the need for OSFI, as a prudential regulator, to act early in response to uncertainty.
• • To signify my underlying intent, I titled my first public speech as Superintendent The Fierce Urgency of Now. In that speech, and in all my subsequent public remarks, I have endeavoured to reach back to OSFI’s origin story and re-affirm our True North, or our will to act when faced with signals of trouble, to paraphrase Justice Willard Estey, the head of the Royal Commission that led to OSFI’s creation.
• Signals of trouble:  Since I began my service as Superintendent, I have pointed OSFI towards a variety of trouble signals – climate change, the digitalization of financial services, and risks in the housing market to name a few.

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• Housing market risk:
  • The housing market faces risks related to increased credit risk and potential economic downturn, which could worsen the vulnerability caused by the level of household indebtedness in Canada. Federally-regulated financial institutions should take proactive measures to manage these risks, including monitoring mortgage asset quality and engaging with industry members on loan plans. The Office of the Superintendent of Financial Institutions (OSFI) has launched a public consultation on Guideline B-20 on Residential Mortgage Underwriting Practices and Procedures and will publish a summary of feedback received from stakeholders. OSFI may also publish an advisory or interim guidance on the next steps to manage these risks.
• Climate change risk:
  • Climate change poses a significant threat to human well-being and global economies, necessitating a shift away from greenhouse gas-emitting energy sources and adaptation to the impacts of a warmer climate.  As nations respond to climate risks, their actions will have profound implications for Canada’s economy and financial system, which will be largely influenced by international efforts rather than its own initiatives.  The Office of the Superintendent of Financial Institutions (OSFI) focuses on building resilience to climate risks within Canada’s financial system through Guideline B-15: Climate Risk Management, and plans to develop a standardized climate-scenario exercise for financial institutions in 2024.

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• Third party arrangement risk:
  • Increased Dependency: Financial services industry’s reliance on third-party arrangements elevates the risk to critical services and data security, with potential systemic implications due to dominant technology providers and rising cyber incidents.
  • Guideline B-10 Implementation: Introduced to address third-party risk management, it reflects global regulatory trends and covers a broad range of third-party arrangements beyond traditional outsourcing.
  • Efforts to improve third-party risk data quality and consistency through initiatives like the 2022-23 pilot program will inform future data aggregation, analysis, reporting processes, and guidelines to better respond to the industry’s evolving landscape.

View the full speech –> here

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