Peter Routledge

“I’m Committed to Transparency”

OSFI’s Superintendent of Financial Institutions on Guideline B15: Climate Risk Management

On April 27th, Peter Routledge, Superintendent of Financial Institutions, outlined to CLA and other stakeholders the following at an Economic Club of Canada event in Toronto:

“As nations of the world mitigate the physical and transition risks produced by climate change, their responses could have a profound impact on Canada, its economy and financial system. More to the point, Canada will be far more influenced by the climate related actions taken by other nations of the world that it will influence the global movement towards climate change adaptation.

So OSFI’s responsibility in this respect is to ensure Canada’s financial system identifies the risks related to climate change and builds resiliency to those risks. Our response to date centers around Guideline B15: Climate Risk Management. This guideline aims to ensure that the various forms of climate related risks, Including transition and physical risks, continue to manifest themselves in various forms.

To help build our climate risk assessment capabilities and those of FRFI’s, we will collect, analyze and disclose new climate risk data. We are also planning to develop a standardized climate scenario exercise that all FRFI’s will undertake in 2024. This scenario exercise will incorporate learnings from two ongoing joint projects with the Bank of Canada OSFI; one on transition risk and another on a single parallel physical risk such as flooding. The final risk from our annual risk outlook that I’d like to highlight Is the use of third-party arrangements by the financial services industry. 

The financial services industry increased dependency on external arrangements

heightens the risk to FRFI’s critical services. This dependence also intensifies the risk- compromised data. Third party providers may also have external arrangements of their own which creates additional complexity for oversight. The emergence of dominant technology service providers and the frequency and severity of cyber incidents have also increased the risk of a systemic event. These third-party arrangements present considerable risks to our system.

We cannot ignore them, nor can we assume they will be static. So this week, we issued Guideline B10, which addressed third-party risk management. It is our response to global regulatory trends and the expansion and complexity of the third party ecosystem. Guideline B10 applies beyond FRFI’s outsourcing to encompass a comprehensive scope of third party arrangements.

We plan to work with industry to improve the consistency and quality of third-party risk data. As a first step, we participated in a third party data submission pilot in 2022-23 with a group of FRFI’s. What we learned from the pilot will be useful and will be used to help improve data aggregation. This data will continue to help us adjust our guidelines to respond to the dynamic realities of the industry we regulate.

So, in conclusion, I’ve said on many occasions I’m committed to transparency about how OSFI sees its risk environment and about its plans.”