Transcript Office of the Superintendent of Financial Institutions Canada Bureau du surintendant des institutions financières Canada A Regulator’s Perspective on ERM CAS / SOA ERM Symposium Washington,

Office of the Superintendent
of Financial Institutions Canada
Bureau du surintendant
des institutions financières Canada
A Regulator’s Perspective on ERM
CAS / SOA ERM Symposium
Washington, July 29, 2003
Allan Brender
Background on OSFI
• Federal supervisor and regulator
• Integrated - cover insurers and deposit
takers
• Protect rights of depositors and
policyholders
• Organized by function, not by industry
– Cross-cultural fertilization
2
OSFI’s Mandate
• Determine whether FI’s are in sound financial
condition and in compliance
• Advise management and directors if the FI is not
in sound financial condition or in compliance
• Monitor / evaluate sectoral events that may have a
negative impact on financial condition
• Promote the adoption by FI’s of policies and
procedures to control and manage risk
3
OSFI’s Mandate
Carry out regulation and supervision while
recognizing that
• Boards of directors are responsible for
management of the FI
• FI’s operate in a competitive environment
that necessitates the management of risk
• FI’s can experience financial difficulties
that can lead to their failure
4
Supervisory Framework
• Identify significant activities
• Evaluate inherent risk in each activity
• Evaluate the quality of risk management for
each risk
• Rate net risk; determine risk direction
5
Supervisory Framework
• Consider capital and quality of earnings
• Determine a composite rating
www.osfi-bsif.gc.ca/eng/documents/practices/docs/framew_e.pdf
6
RM in Banking
• Emerged from Basel Accord
– Relationship between RM and capital
– Interaction of RM and capital requirements
• RM was accepted as something more than a
regulatory requirement
– RM became an important part of banking
culture
7
RM in Insurance
• Emerging slowly
• Insurers and actuaries are sensitive to others’ risks
• Insurers concentrate on a few specific risks of
their own
– They miss out on many others
• Valuation models
• Product design
• Time scale is a factor
• A significant culture change is required
8
Appointed Actuary or CRO ?
• Role of the AA
• Role of the CRO
• Who has the broader horizon?
• Whistle blowing
9
Financial Condition Reporting
• DST, DCAT, DFCA, DFA, …
• AA in Canada is required to prepare an annual
financial condition report using DCAT
– Aimed at directors and senior management
– OSFI receives a copy
• DCAT as a risk management exercise
10
ERM in Practice
• Solid corporate governance
• Well-documented policies, procedures, and
limits
• Appropriate monitoring and reporting
• Willingness to take necessary action
11
Office of the Superintendent
of Financial Institutions Canada
Bureau du surintendant
des institutions financières Canada
www.osfi-bsif.gc.ca
Thank you!