OSFI combats fears over board and executive appointments

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When Canada's financial watchdog proposed new rules for executive and board appointments in January, some people couldn't help but scratch their heads.

Because Canada's regulatory landscape is already so widely praised, industry members questioned why the Office of the Superintendent of Financial Institutions wanted even more say into the way banks and insurers go about their business.

Chiefly, there were concerns that OSFI wanted to vet each institution's candidates for executive promotions and board appointments. if so, did it mean OSFI was more or less running these institutions at an arm's length?

OSFI heard the complaints loud and clear. On Wednesday the federal regulator released the final version of its rules, and took extra effort to address the concerns.

The final draft, the regulator said, "further reinforces that decisions on such [management and board] changes remain with [federally regulated financial institutions] themselves, which addresses the misconception that OSFI's approval or vetting would be required."

However, OSFI also stressed that it wasn't backing down from its involvement in the executive and board appointment process, which requires financial institutions to flag their candidates for the regulator ahead of time. In other words, when Royal Bank of Canada appointed Jennifer Tory as its new head of personal and commercial banking in March, it would have had to give OSFI a heads up first.

Although the process can seem as though the regulator wants to conduct background checks on candidates, "it is not OSFI's intention to 'vet' or otherwise require regulatory approval for FRFIs' hiring decisions. Rather, the advisory is intended to formalize existing practice where FRFIs provide OSFI with early notification before senior appointments or nominations are made."

OSFI also noted that the regulator's involvement with the appointment process stems not only from its own goals, but also from a globally coordinated effort among Group of Thirty countries to be more involved in the due diligence process around such appointments.

Other key concerns that OSFI addressed in the final draft included the 30-day early notification period before appointments are made, as well as the reasons for holding introductory meetings with any appointees.

Regarding the 30-day window, the regulator noted this was a common concern because it was simply too onerous. Two weeks would be much more doable, according to the feedback. OSFI has revised its guidelines and now says that notifications "should be provided as early as possible."

As for the introductory meetings, financial institutions feared that these gatherings would be used as an assessment of their corporate governance. OSFI's final draft stresses that the main purpose of these meetings is simply to explain its expectations and to outline how the new hires should interact with the regulator.

To drive home this point, the regulator noted that while it can request meetings with the potential appointees, such meetings would only occur after they are appointed or elected.