In a recent interview with Banking Risk and Regulation's John Crowley, Ben Gully, Deputy Superintendent at Canada's Office of the Superintendent of Financial Institutions (OSFI), discussed the regulator's focus on non-financial risks in its new supervisory framework.
"On the risk front, we've moved from a classic financial risk approach to one where we are in the arena of non-financial risks — climate, technology, cyber and geopolitical," Gully said. “This view of financial strength and control needs to be augmented with broader notions of resiliency, both operational and financial. It is an approach that is more focused on outcomes, rather than on inputs alone.”
While effective measurement of non-financial risk remains a challenge, OSFI's framework seeks to address management, strategy, contingency, and adaptability regarding these risks. Measurement and modelling are important, but they have limitations. "It's very hard to forecast what will come," Gully said. “So what you're in the business of [doing] is being able to adapt, resolve, triage – and hopefully have the tools, data infrastructure, capabilities, the people, the contingency plans… to allow the organisation to adapt and respond.”
He also cautioned that capital requirements and regulation are necessary, but not sufficient, for ensuring the soundness of institutions. "You still need the judgement," Gully concluded. “You still need risk management in the institutions [getting] to good outcomes. Certainly for OSFI we're doing our best to make sure that we've got supervisors equipped to adapt and respond because we know there will be surprises — and we need to be able to manage that.”
In an interview for Starling's 2022 Compendium, Peter Routledge, Canada's Superintendent of Financial Institutions, discussed how OSFI seeks to regulate and supervise the non-financial risks stemming from organizational culture.
"In the culture taxonomy that we have created, diversity of thought, leadership, and group dynamics are examples of areas where we can begin to assess effective culture practices," Routledge said. "Future work includes looking more closely at senior executive compensation structures and related measurement to support and reinforce a culture of integrity and effective risk management at all levels." ▸ Read More
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