OSFI consults on regime for industry accountability

The consultation, which is slated to run for nine months (to Oct. 31), sets out the regulator’s proposed principles-based approach to modernizing suitability and accountability standards for senior industry leaders.

“Strong senior leader accountability helps institutions stay resilient, manage risk and maintain public trust. Weak suitability and accountability can pose serious non‑financial risks,” the regulator said. “Leaders who are unsuitable or unaccountable can weaken governance, harm public trust in their institutions, and affect the broader economy and financial system.”

“Recent events, including governance cases in Canada and the failures of several banks globally, have highlighted the growing imperative to ensure that senior leaders are well-equipped to make sound decisions and held accountable in an environment that poses increased risks to their resilience or the solvency of their institutions,” the paper said.

And, it stressed the importance of high standards for senior industry personnel.

“As risks become more unpredictable, senior leaders are a critical line of defence in ensuring that financial institutions remain sound and resilient,” it said. “Accountability enables the institution to meet its suitability standards, linking individual competence and integrity to governance outcomes and consequences, leaving no room for complacency.”

OSFI said it closely reviewed similar mechanisms in other jurisdictions, such as the U.K. and Australia, in developing its proposed approach.

“The goal is to ensure the regime is practical, effective, and aligned with industry realities and international practices,” it said.

Alongside that initiative, the regulator also launched a consultation on consolidated new guidance on how firms manage credit risk that aims to bring together all of its existing guidance in this area into a single guideline — that, it said, will “streamline existing regulatory expectations and incorporate international best practices on credit risk.”

Currently, OSFI’s guidance on credit risk management is spread across multiple guidelines, notices, advisories and letters, it said.

“Bringing these expectations together in a single, clear guideline will reduce compliance burden, close regulatory gaps, and make it easier for institutions to interpret and apply OSFI’s guidance,” it said — adding that this will also enable it to more easily address evolving risks, such as the growth of shadow banking and counterparty credit risk.

The consultation on its consolidated guidance will run for six months, to July 29.

Additionally, OSFI published the final version of its latest liquidity requirements Thursday, which will come into effect on May 1.

The regulator said the updated requirements “clarifies which deposits can be classified as retail funding and qualify for favourable liquidity treatment,” clarifies how it measures the maturity of structured notes, and simplifies the…