OSFI Releases Annual Report For Fiscal Year 2023 – 2024

On October 15, 2024, the Office of the Superintendent of Financial Institutions (OSFI) published its annual report for the fiscal year from April 1, 2023 to March 31, 2024 (the “Annual Report”), which provides an overview of OSFI’s performance and major achievements during the year.

Throughout the fiscal year, OSFI achieved several key milestones, each described in the Annual Report. The Annual Report also outlines OSFI’s strategic priorities and targeted outcomes for 2024-2025 and beyond.

Key Accomplishments

1. Proactive Supervisory

OSFI strengthened its financial oversight by implementing the following significant updates to its supervisory framework:

• As reported in our February 2024 Update, OSFI Releases New Framework to Modernize Financial Supervision, the new supervisory framework is aimed at enhancing the protection of depositors, policyholders, creditors, and pension beneficiaries.
  
• In July 2023, OSFI launched a public consultation on the capital and liquidity treatment of crypto-asset exposures, with final guidance expected in 2024-25. This guidance aims to ensure that banks and insurers hold sufficient capital and have proper liquidity measures for their crypto-asset exposures. Additionally, in September 2023, OSFI published the Parental Stand-Alone Total Loss Absorbing Capacity Framework for Domestic Systemically Important Banks and the Parental Solo Capital Framework for life Internationally Active Insurance Groups. These frameworks focus on assessing the financial strength of the Canadian parent entities rather than their consolidated operations.
  
• In October 2023, OSFI revised its Capital Adequacy Requirements Guideline, requiring institutions to hold additional capital for riskier mortgages.
  
• Throughout 2023-24, OSFI conducted quarterly reviews of the Life Insurance Capital Adequacy Test (LICAT) and Minimum Capital Test to evaluate insurers’ application of the updated capital tests under International Financial Reporting Standards (IFRS) 17. A capital sensitivity test was also performed to understand LICAT volatility post-IFRS 7. To ensure consistency, OSFI issued LICAT adjustments and clarifications in June 2023, with a focus on the segregated fund guarantee capital approach under the new standard.

2. Effective Regulation and Stakeholder Engagement

OSFI advanced its approach to non-financial risks by updating supervisory tools and guidelines on technology, cyber risk, operational resilience, third-party risks, and compliance. OSFI also remained vigilant in monitoring risks within the real estate and housing sector, reinforcing sound underwriting practices among federally regulated lenders.

Additionally, OSFI implemented a stakeholder relationship management system and created tools, templates, strategies and communication plans to improve outreach, which in turn facilitated more effective discussions on key issues across its stakeholders.

3. Implementing Expanded Mandate

In Budget 2023, the Government of Canada expanded OSFI’s mandate to determine whether supervising institutions have adequate policies and procedures to protect against threats to their integrity and security, including foreign interference. In response, OSFI established the Emerging Risk Operations Directorate and the National Security Sector (NSS), which has been operational since November 2023. The NSS has since developed the necessary infrastructure, built partnerships with key intelligence agencies such as the Communications Security Establishment and Public Safety Canada, and strengthened its collaboration with the Canadian Security Intelligence Service and FINTRAC.

In January 2024, OSFI published the Integrity and Security - Guideline which sets out expectations for integrity and security policies and procedures to all institutions, including foreign bank branches and foreign insurance company branches.

4. Modernized Data and Analytics

OSFI made significant progress in modernizing its data, analytics capabilities, and advancing efficiency through technology upgrades. The Data Collection Modernization initiative created by OSFI, conducted in collaboration with the Bank of Canada and the Canada Deposit Insurance Corporation, aims to improve regulatory data collection by replacing outdated technology.

In line with its “Vision 2030” Data Strategy, OSFI is building a long-term foundation for data transformation, focusing on data governance, management, and analytics using cloud technologies. This strategy includes conducting research, a three-year roadmap for implementation, and the integration of advanced tools like OpenAI. Additionally, OSFI developed a data literacy strategy to be launched in 2024-25, with the aim of strengthening employees’ data skills through targeted training.

5. Effective Sound Risk Management

OSFI enhanced its risk analysis and reporting processes by developing PowerApps dashboards for visualizing various risk factors and streamlining data collection for both external and internal sources of information. Additionally, OSFI conducted geopolitical risk stress tests for four internationally active insurance groups and six major banks.

OSFI also made significant advancements in Enterprise Risk Management (ERM),developing its ERM framework and policy and implementing a risk culture framework to enhance risk awareness. OSFI focused on monitoring and testing internal controls and established committees and roundtables to facilitate knowledge-sharing on best practices in risk management both internally and with external stakeholders.

6. OCA

The Office of the Chief Actuary (OCA) functions as an independent actuarial center, delivering studies, reports, and advice that support informed decision-making. The OCA released several reports including, (i) the triennial Actuarial Report on the Canada Pension Plan, projecting demographic and economic trends over a 75-year period; (ii) the Actuarial Report on the Canada Student Financial Assistance Program; and (iii) reports on federal public sector pension and benefit plans for the Public Accounts of Canada, providing critical input for financial accountability.

7. Enabling Internal Services

In the past fiscal year, significant improvements were made in enabling internal services to support OSFI’s core mandate and operational resilience. These improvements include: (i) developing the 2024-27 Human Capital Strategy which involved extensive consultations to identify emerging themes and areas for improvement, focusing on modernizing the human capital management system to enhance efficiency and user experience; and (ii) advancing diversity, equity, and inclusion within OSFI by establishing a pay equity committee and a sponsorship program for employment equity-designated groups, as well as a sponsorship program for employment equity-designated groups.

2024 -2025 and Beyond

OSFI identifies six key strategic priorities and targeted outcomes which it will work towards in the next three years: (i) an expanded mandate focused on integrity and security, ensuring the supervisory framework effectively addresses related risks; (ii) supervisory renewal to enhance OSFI’s capacity for timely intervention; (iii) culture initiatives aimed at fostering a resilient workforce that embodies grit, integrity, and urgency; (iv) maintaining leading-edge data management and analytics capabilities and systems; (v) responding to emerging risks to ensure institutions are in sound financial condition; and (vi) enhancing operational resilience to deliver critical functions amid adversity and uncertainty.

For more information concerning the matters raised in the Annual Report, please contact any member of our Financial Services Regulatory Group