Canada’s banking and insurance regulator is updating its corporate governance guidelines for the first time in about a decade, placing more responsibilities on the shoulders of directors.
The Office of the Superintendent of Financial Institutions says that its current guidelines are "no longer consistent with current industry best practices and international standards."
That’s not to say that this country’s banks and insurers are necessarily lagging behind; their boards already go beyond the rules that OSFI published in 2003, and the regulator has continually been prodding them to ensure they bolster their capabilities on a number of fronts. But it is now documenting its desires in writing, emphasizing things that OSFI head Julie Dickson has been stressing verbally in the past few years, such as the need for more financial industry expertise on boards.
One of the main reasons OSFI is doing this now is because it wants to codify its request that all Canadian banks and insurers draft a "Risk Appetite Framework."
The document must lay out basic goals, benchmarks, parameters and limits that the company has given on a variety of factors - including things such as a maximum allowable level of losses tolerable in a certain period. It should outline in detail things like liquidity preferences, hedging strategies, tolerance for outsourcing, acceptable credit limits, concentration levels, the risks in various positions and geographies, and acceptable leverage.
OSFI is now consulting with the industry and listening to any concerns that the banks and insurers might have before setting its new guidelines in stone.