Many financial institutions, already grappling with growing regulatory demands, will find it challenging to implement a new operational risk management framework imposed by the federal financial watchdog by next summer, according to financial services experts.
The guideline comes on the heels of a series of onerous “expectations” issued by the Office of the Superintendent of Financial Institutions (OSFI) over the past several years on corporate governance and regulatory compliance management (Guideline E-13). The introduction of a guideline on operational risk, defined by OSFI as the risk of loss “resulting from people, inadequate or failed internal processes and systems, or from external events,” comes as no surprise as it is in line with the federal regulator’s views on how financial institutions ought to be managed, said Paul Belanger, group leader of the financial services practice at Blake, Cassels & Graydon LLP in Toronto.
The federal financial watchdog has given Canada’s big banks an extension to implement global reforms that establish more consistent disclosure rules to allow them to focus and devote the “significant level of effort required” to implement new international accounting standards for financial instruments.
The Office of the Superintendent of Financial Institutions (OSFI), globally renown as a dominant and strong regulator, originally adopted an aggressive timeline for the implementation of the revised Pillar 3 standards issued by the Basel Committee on Banking Supervision, an international banking regulator – and an equally aggressive stance towards the adoption of the International Financial Reporting Standard (IFRS) 9 Financial instruments accounting standard, according to financial services experts.
But the federal banking regulator recently softened its stance, and granted so-called domestic systemically important banks (D-SIBs) a year-long extension, until fiscal year ending October 31, 2018, to implement the revised Pillar 3 disclosure requirements.
Canadian banks, long chastised for its conservativeness, are in solid shape, with the World Economic Forum going so far as to deem it to be the world’s soundest banking system.