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What Is OSFI?

What_Is_OSFI.jpgIf your organization deals in the financial sector in Canada, chances are you’ve heard the acronym “OSFI” tossed around. But who or what is it? What does it do and, most importantly, what does it mean for your organization?

A Federal Agency

The Office of the Superintendent of Financial Institutions is an agency of the Canadian federal government. It was formed in 1987 when 2 other agencies, the Department of Insurance and the Office of the Inspector General of Banks, were merged. Although it was created by the federal government and reports to the Canadian Minister of Finance, the independent agency operates at arm’s length from the government. The government doesn’t exercise control over its operations, leaving it free of party politics and factionalism.

The Agency’s Mandate

In the late 1980s, following 2 well-publicized institutional failures, the OSFI was created in order to maintain consumer confidence in the Canadian financial markets. The agency is responsible for the regulation of banks, insurance companies, pension plans, and loan and trust companies in Canada. It works to keep consumer confidence high in a few ways. It guarantees all deposits at Canadian financial institutions through the Canadian Deposit Insurance Corporation (CDIC). It also reviews business pension plans to ensure they’re properly funded. Finally, the agency helps mitigate financial issues as they crop up, although its primary goal is to minimize losses to policyholders, depositors, and pension plan members. It is not designed to prevent the failure of financial institutions, but much of the agency’s legislation, such as early prevention and the promotion of sound business practices, also works to reduce the chance of an institutional failure.

What OSFI Does

Understanding the agency’s mandate is one thing, but how does it go about enacting those lofty goals? One of the major things OSFI does is monitor institutions to ensure they’re complying with regulations, laws, and requirements for operation. The agency also audits institutions and pension plans to determine their financial health and, if deficiencies are found, it provides prompt recommendations for corrective measures. It also has the ability to take those corrective measures itself. Finally, OSFI monitors the financial industry and markets for issues that could have negative impacts, and applies procedures and policies designed to manage those risks. 

The agency is part of the Financial Institutions Supervisory Committee (FISC), which includes CDIC, the Bank of Canada, the Financial Consumer Agency of Canada, and the Department of Finance. FISC constitutes Canada’s system of financial regulation and supervision. The agency also works with its provincial counterparts and meets with industry stakeholders. It is also active in international organizations, such the Basel Committee on Banking Supervision, to keep Canadian concerns in mind when international financial regulations are being developed.

Who Is Affected?

While OSFI keeps an eye on the financial markets in general, it regulates federally incorporated trust and loan companies, cooperative credit associations, fraternal benefits societies, private pension plans, and insurance companies. It is also the sole regulator of banks operating in Canada.

The agency doesn’t monitor consumer-related issues or the securities industry.

What Your Organization Needs to Do

If your organization is one that is supervised by OSFI, hearing about this federal watchdog can bring up some concerns about how your company operates and complies with the agency’s framework. Perhaps the smartest thing a company can do is implement compliance software to monitor changes in regulatory requirements, including those issued by OSFI. That way, the organization can ensure it’s always in-step with the safeguards and precautions mandated by the agency—and help contribute to a stronger financial sector.

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