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Role of Corporate Governance in OSFI’s Supervisory Process
- Board and sr mgt are key oversight functions
- Effective oversight
- helps protect depositors and p.h.'s,
- allows OSFI to use work of company’s internal processes to reduce amount of supervision
- if company is in trouble, Board is required to seek solutions and oversee implementation of corrective actions.
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OSFI’s Supervisory Assessment
- risk-focused supervision
- assess safety and soundness, quality of control and governance processes, and regulatory compliance.
- Open communication between Board and regulators to promote trust and confidence for principles-based system of supervision
- Board should follow up on recommendations by regulators, and sr mgt action plans to address regulatory matters
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Risk Appetite framework
- contain risk appetite statement and risk limits
- roles and responsibilities of those overseeing implementation of Framework.
- integral part of ERM
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Key features of Risk appetite statement
- reflect agg level of risk and type of risk FRFI is willing to accept to achieve business objectives
- key features:
- linked to strategic, capital and financial plans, and compensation programs;
- Incl qualitative and quantitative measures that can be agg'd and disagg'd;
- forward-looking;
- consider normal and stressed scenarios
- within regulatory constraints
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Risk Appetite Statement - Qualitative and quantitative measures
- Qualitative:
- Sig risks firm wants to take / avoid and why;
- Attitude towards regulatory compliance;
- U/L assumptions and risks.
- Quantitative:
- loss or negative events (earnings, capital, earnings per share at risk) that FRFI is willing to accept
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Risk Appetite framework - Risk limits/tolerance
Allocation of risk appetite statement to: - risk categories (credit, market, insurance, liquidity);
- BU or platform level (retail, capital markets);
- LOB's or product level (concentration limits);
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Implementation of the Risk Appetite Framework
- Framework should align with corp strategy, financial plans, daily operations, and risk mgt policies (risk limits, risk selection/UW guidelines)
- Control, monitoring and reporting to ensure compliance with Framework incl:
- CRO to ensure agg risk limits consistent with risk appetite stmt
- CRO to report to Board and sr mgt assessment against risk appetite stmt
- Internal Audit routinely assess compliance
- Board and sr mgt should receive regular reports on effectiveness of, and compliance with, Framework
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