Keeping banks in check
It is "inadequate" for global regulators to merely create new rules for the financial sector, because preventing another crisis also requires an equivalent focus on the day-to-day supervision of the industry, says Canada’s top banking regulator.
Julie Dickson, superintendent of the Office of the Superintendent of Financial Institutions, made the remarks Wednesday during an address at the Women in Capital Markets luncheon in Toronto. While the OSFI is updating its supervisory framework and increasing its oversight of risk management, Dickson does not want to cross the line by intruding into the management of banks.
While regulations tend to focus on issues such as banks’ capital requirements, supervision centres on when and how regulators intervene in the industry, Dickson said. When it comes to supervision, there are significant differences in supervisory regimes around the world.
"To the extent that some financial systems were more resilient than others, we need to focus on what worked well," Dickson said. "Day-to-day supervision is one such area that deserves focus and that has not been discussed as yet in any great depth internationally; it should be."
Supervision can involve more on-site visits and proactive intervention when a company’s risk management process appears weak. Dickson made it clear that the regulator will not hesitate to step up its on-site verification if it feels that a financial institution is being deliberately opaque about its business. "We have considerable powers to use if required," she said cash advance now.
While some U.S. supervisors have established permanent offices in the banks, the OSFI prefers to take a "balanced" approach. That’s because its mandate stipulates "regulation and supervision must be carried out having regard to the fact that boards of directors are responsible for the management of financial institutions."
Still, whenever a company appoints a new chief risk officer, the OSFI does consider how that appointment affects its own risk assessment.
"We discuss how much depth the new CRO (chief risk officer) has, the person’s clout and general disposition toward risk. At times, I have to say we have expressed, within OSFI, positive and negative views about such appointments," Dickson said.
Nonetheless, she is wary about the regulator being involved in the actual selection of those individuals. "I think you are crossing the line when you do that," she said.
The OSFI, meanwhile, is "developing guidance on minimum expectations for firms in setting risk appetite," while bolstering its scrutiny of risk management around the use of models.
With respect to board composition, Canadian financial institutions should be filling more of those seats with bankers in an effort to "deepen" expertise on financial issues, she said. "It’s something all institutions should be paying attention to."