LETS DO BETTER

Revised roles for chief risk officer, audit committee

OFSI sharpens corporate governance rules.

Canada’s top banking regulator has raised expectations for corporate governance at the country’s federally regulated financial institutions, particularly in the areas of risk appetite and controls.

The most significant changes made by the Office of the Superintendent of Financial Institutions Monday concern board effectiveness, including making improvements to the composition of boards and the competencies of directors, as well as bolstering the roles and independence of the chief risk officer and the audit committee.

“The revised guidelines will help boards of directors and senior management to identify and manage risks being undertaken by their financial institutions,” said Julie Dickson, superintendent of OSFI. “Strong corporate governance is essential to the safety and soundness of Canada’s financial institutions.”

Excessive risk-taking was blamed for the financial crisis of 2008, and several highprofile and costly missteps by global banks since then.

Ms. Dickson said OSFI’s update, the first in a decade, follows a review of the Canadian system dating back to 2010, and an overhaul of international standards.

International Standards on corporate governance are set by organizations including the Financial Stability Board, chaired by Bank of Canada governor Mark Carney, the Organization of Economic Cooperation and Development, and the Basel Committee for Banking Supervision.

“OSFI believes the time has come to update its own guidance in this area to incorporate changes that have taken place over the last 10 years,” the agency said Monday.

The Canadian regulator issued draft guidelines last fall, but took input from the financial industry before releasing the final new requirements. Some leeway was given to smaller institutions and on the nature and frequency of third-party reviews. But OSFI held firm to planks such as independence on boards of directors, including considering time served as a director when assessing independence.

“OSFI is of the view that the concept ‘independent’ is well-understood, particularly in the legal community, and is used extensively in international standards,” the regulator said. “By attempting to define the concept of ‘independent,’ there is a risk that FRFIs (financial institutions) would simply undertake a compliance exercise... and not necessarily adhere to the full spirit of independence,” OSFI said in response to industry concerns.

The regulator also held firm that compensation of a chief risk officer should not be linked to revenue generation, of specific business lines.

Federally regulated deposit-taking institutions and private pension plans are expected “to conduct a self-

Guidelines will help boards ... identify and manage risks

assessment of compliance… and to establish a plan to address any deficiencies.” Written updates for the regulator are to be completed by May 1, and full implementation of the new guidelines is expected by no later than Jan. 31 of next year.

Costs to the industry are not expected to be “significant,” since corporate governance practices and procedures have “evolved” over the years at several federally regulated financial institu

tions, OSFI said.

Julie Dickson