The topic is the recently published OSFI Risk outlook update.

First, here is my take:

• this is a valid list of risk areas are represented with two (2) exceptions in my view:
  
  • New Risk: FRFI management quality and effectiveness. This is a prevalent risk in the US. Are OSFI saying such risks do not exist now or in future for Canadian FRFI’s.
  • Digital Innovation is a misnomer. Call it out as Blockchain and digital money held within Blockchain and within entities where standard bank regulation principles are not adhered to now or in future.
• Cyber Risk is understated, insufficiently broad and generally under represented.
  
  • e.g. the risk associated in the prevalence of software, applications and nouveau vendors (particularly services covering customer authorisation, authentication, KYC and AML) that are shared across multiple Tier 1 FRFI.
    

The following are quoted from the OSFI Annual Risk Outlook 2023-2024

Original link

https://www.osfi-bsif.gc.ca/Documents/WET5/ARO/eng/2023/aro.html

Risk environment – The 9 financial risks that OSFI views as most pressing:

1. Housing market downturn risk
2. Liquidity and funding risk
3. Commercial real estate risk
4. Transmission risk from non-bank financial intermediaries sector
5. Corporate and commercial credit risk
6. Digital innovation risk
7. Climate risk
8. Cyber risk
9. Third party risk

Overview of changes to the risk environment

The financial system is adjusting to a higher interest rate environment. Given the rapidity at which interest rates globally have increased, the risk has grown that such an adjustment may not be completely smooth. This phenomenon places a premium on Canada’s notable financial system resiliency.

Other risks also present themselves on OSFI’s horizon. Growth and uncertainty in unregulated non-bank financial intermediation may increase the likelihood of risk transmission to the broader financial system during periods of volatility and market decline.

FRFIs and FRPPs face climate-related physical risks (e.g. weather events) and transition risks as Canada and its trading partners move toward a low greenhouse gas emitting or “low-carbon” economy. These climate-related risks in turn could exacerbate more traditional risks, including credit, market, insurance, and operational risks.

Geopolitical risks continue to contribute to market volatility and may increase the risk to the integrity and security of the financial sector and FRFIs.

Since the end of the Global Financial Crisis of 2008-09, OSFI has required that FRFIs increase their safety buffers (e.g., capital and liquidity requirements) to support their ability to operate through intensified bouts of financial system volatility.

Canadian FRFIs are now well-prepared to persevere through difficult situations, much more so than they were prior to the Global Financial Crisis.

Annex to OSFI Annual Risk Outlook

Guidance priorities

This annex updates our near-term plan of guidance priorities for FRFIs and FRPPs. The references below reflect calendar quarters and cover the periods from Q2 2023 to Q2 2024.

Our guidance priorities are divided into three streams: (i) Risk Management Guidance for FRFIs, (ii) Capital and Accounting Guidance for FRFIs and (iii) Guidance for FRPPs.

The timelines indicated below reflect our strategic plans and risk priorities. Plans may be changed or amended due to external factors causing us to reconsider the dates for the guidance impacted.

I. Risk management guidance

Guidance initiative	Guidance initiative Q2 2023	Purpose
I. Risk management guidance for FRFIs
Q2 2023	Final revised Guideline B-10: Third-Party Risk Management	Establishes enhanced risk management expectations related to third-party management.
Q3 2023	Results of initial Guideline B-20: Residential Mortgage Underwriting Practices and Procedures consultation on debt serviceability measures	Presents a summary of stakeholder feedback on the initial Guideline B-20 consultation on debt serviceability measures as well as next steps.
	Revised Guideline E21: Draft Operational Risk and Resilience	Sets out expectations on operational resilience, while continuing to reinforce expectations for operational risk management.
Q4 2023	Final Culture and Behaviour Risk Guideline	Finalizes expectations for governance and management of culture and behaviour risks.
II. Capital and accounting guidance for FRFIs
Q2 2023	Treatment of wholesale products with retail characteristics in the Liquidity Adequacy Requirements (LAR) Guideline	Public consultation to analyze the liquidity risks of HISA ETFs and, generally, confirm the appropriate liquidity treatment of wholesale products that have retail characteristics in the LAR Guideline.
	Revised Guideline E-23: Draft Model Risk Management Guideline	Public consultation on expectations on the life cycle approach to managing the use of models.
	Draft Pillar 3 Disclosures Guideline (revised), incorporating Market Risk and Credit Valuation Adjustments (CVA) Risk Disclosure Requirements	Public consultation on Market Risk and CVA Risk Pillar 3 disclosure requirements for banks.
	Consultative document on a stand-alone capital framework for large internationally active banks and insurance companies.	Seeks stakeholder feedback on the development of a solo capital framework to assess the sufficiency of capital that is available to domestic parent banks and insurance companies on a standalone basis.
Q3 2023	Final stand-alone (solo) capital framework for large internationally active banks and life insurers	Finalize standards to ensure that any domestic parent bank or life insurer maintains adequate capital on a solo, legal entity basis that is free of regulatory and legal barriers.
	Updates to interim approach for the capital treatment of crypto asset exposures	Public consultation on updates to the interim approach published in August 2022.
Q4 2023	Updates to capital frameworks for life insurers (LICAT guideline), mortgage insurers (MICAT guideline) and P&C insurers (MCT Guideline)	Incorporate minor revisions into the insurance capital frameworks.
Q1 2024	Draft approach for determining capital requirements for segregated fund guarantee risk	Public consultation on the draft capital approach, along with accompanying forms.
	Revised Draft Guideline B-11: Pledging and the Covered Bond Limit Framework	Public consultation on revisions to expectations on pledging, as well as the framework around the covered bond limit.
Q2 2024	Consultation document on liquidity risk for insurers	Public consultation on a framework / guidance on liquidity risk in insurance companies
	Consultation document on the MCT	Public consultation on potential future MCT framework updates
FRPP – Private pension plans
Q2 2023	Technology and cyber incident reporting advisory and reporting form	Provides information to assist administrators of FRPPs to report technology and cyber incidents to OSFI.

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