Canada: OSFI Releases Draft Revised Corporate Governance Guideline

On August 7, 2012, Canada's federal financial institutions regulator, the Office of the Superintendent of Financial Institutions (OSFI), released for comment a draft of its long-awaited revised Corporate Governance Guideline (the Revised Guideline). The draft Revised Guideline sets forth OSFI's expectations for corporate governance of federally-regulated financial institutions (FRFIs). Like the current Guideline, it would apply to all FRFIs except foreign bank branches and foreign insurance company branches.

Consistent with the direction and themes signaled in recent speeches of the Superintendent, the draft Revised Guideline would impose a number of significant new requirements. The draft Revised Guideline is intended to:

  • ensure that FRFIs have prudent corporate governance practices and procedures that contribute to their safety and soundness;
  • promote industry best practices in corporate governance;
  • be consistent with and complement:
  • the respective FRFI statutes and related regulations; and
  • OSFI's Supervisory Framework ( most recently revised in 2011) and Assessment Criteria; and
  • address international standards as articulated by a number of international organizations.

To best meet those goals, the Revised Guideline focuses on (i) enhancing the effectiveness of boards by providing clarity on board responsibilities and competencies; (ii) strengthening FRFIs' risk governance by requiring the development of a "Risk Appetite Framework" (RAF) to guide risk-taking activities; and (iii) improving the overall internal control framework of FRFIs by clarifying the roles of the Chief Risk Officer and audit committee.

The Revised Guideline is open for stakeholder comments until September 14, 2012. Given the significant new requirements, FRFIs and their boards will want to carefully consider the particular implications of the draft Revised Guideline for their institution and whether they wish to comment on the draft Revised Guideline.

Background and Overview


OSFI's original Corporate Governance Guideline was published in 2003. Since then, corporate governance best practices have evolved significantly, including in response to the financial crisis of 2008 and onward. Further, a number of domestic regulators, international standard setters and various commentators have recently published lengthy reports highlighting best practices and standards for effective corporate governance of financial institutions. Accordingly, OSFI believed it appropriate to update its own guidance in the area.

OSFI also established a dedicated Corporate Governance Division in 2010 to review FRFI practices and ensure FRFI compliance with the original Guideline. The draft Revised Guideline reflects the results of a comprehensive cross-sector review of the corporate governance practices of the larger FRFIs by the new OSFI Division in 2010/2011, as well as review and comment on prior drafts of the Revised Guideline by select FRFI directors.

Overview of the Revised Guideline

The key sections of the Revised Guideline, namely Section III, IV and V, focus, respectively, on three fundamental components of corporate governance for FRFIs:

  • the role of the Board;
  • risk governance, described as a distinct and crucial element of corporate governance for FRFIs; and
  • the role of the audit committee.

As noted above, the Revised Guideline would apply to all FRFIs other than foreign bank branches and foreign insurance company branches. Branches do not have boards of directors and, accordingly, the specific provisions of the Revised Guideline would not apply directly to branch operations. Instead, OSFI looks to the Chief Agent or Principal Officer of a branch to oversee the management of the branch, including corporate governance matters. Those individuals are recognized as having overall responsibility for their respective branches and, therefore, should be aware of the contents of the Revised Guideline. The Chief Agent or Principal Officer of branches should refer to OSFI Guidelines E-4A or E-4B, as appropriate.

In addition to complying with the Revised Guideline, OSFI expects FRFI boards and senior management to be proactive, and to be aware of corporate governance best practices applicable to their institution. According to OSFI, this is achievable through director orientation and training, self-assessments and independent third party reviews. OSFI also recognizes that individual FRFIs may have differing corporate governance practices depending on their size, ownership structure, nature, scope and complexity of operations, corporate strategy and risk profile.

A FRFI's board and senior management are ultimately accountable for the FRFI's safety and soundness and compliance with law. In the Revised Guideline, as in OSFI's Supervisory Framework, the roles of the board and senior management are purposively distinguished. The board is made responsible for providing stewardship, including direction-setting and oversight of the management and operations of the entire FRFI. Senior management is ultimately accountable for implementing the board's decisions and for directing and overseeing the effective management of the operations of the FRFI.

The Role of the Board


In Section III of the Revised Guideline, OSFI outlines the following essential duties that boards must discharge, in addition to the roles and responsibilities stipulated in the applicable FRFI statutes. The section also differentiates between matters to be approved by the board and matters to be reviewed and discussed by the board.

The board should approve the FRFI's:

  • short-term and long-term enterprise-wide business objectives, strategy and plans, including the RAF (discussed further below);
  • significant strategic initiatives;
  • internal control framework;
  • appointment, performance review and compensation of the CEO and other members of senior management including the heads of oversight functions;
  • succession plans; and
  • external audit plan.

The board should review and discuss the FRFI's:

  • significant operational and business policies;
  • business and financial performance relative to the board-approved business strategy and RAF;
  • compensation policy for all human resources, to be consistent with the Financial Stability Board Principles for Sound Compensation and related Implementation Standards;
  • implementation of internal controls;
  • organizational structure; and
  • compliance with applicable laws.

The draft Revised Guideline notes that the latter functions are primarily the responsibility of senior management. However, through review, discussion and debate, the board has a critical role in providing high-level guidance to senior management. The board should establish processes to periodically verify the assurances provided to them by senior management, but the board is not responsible for the on-going and detailed operationalization of its decisions and strategy - these are for senior management to consider. While senior management should have regular interaction with regulators with respect to the overall operations of the FRFI, the board should ensure that regulators are promptly notified of substantive issues affecting the FRFI.


In respect of board effectiveness, the Revised Guideline sets out a number of new recommendations/requirements, including that the board should periodically commission independent third-party reviews to assess the effectiveness of board and committee practices and that boards should have a skills evaluation process for themselves, including incorporating tools such as a competency matrix. At a minimum, this matrix should be reviewed annually and updated by the appropriate board committee. Directors should seek internal or external education/training opportunities in order to fully understand the risks undertaken by their FRFI. The Revised Guideline notes that relevant financial industry and risk management experience are key competencies for the board and there should be reasonable representation of these skills at the board and committee levels.


In respect of board independence, the Revised Guideline views demonstrable board independence to be the core of effective FRFI governance. Beyond the principle of separating the roles of Chair and CEO, OSFI does not view any one board structure or process as guaranteeing independence. The Revised Guideline also recommends that the board should document and approve a director independence policy that takes into consideration the specific ownership structure of the institution. Where appropriate, director tenure should also be factored into the independence policy.

Board Chair

In respect of the board chair, the Revised Guideline newly recommends that the role of chair should be separated from that of CEO, as this is critical in maintaining the board's independence and executing its mandate.

Oversight Functions

The Revised Guideline notes that in order for the board to fulfill its duties, the board relies upon the advice and opinions of the various oversight functions within the FRFI. Thus, the board should ensure, through assurances from senior management and their own verification processes, that the persons discharging the oversight functions have the appropriate mandate, resources and organizational structure to fulfill their duties. As well, the board should ensure that these persons are independent from operational management, and are not unduly influenced by senior management and other business unit executives.

Further, the heads of the oversight functions should have unimpeded access to the board, including in camera meetings with the board and its relevant committees (including the new risk committee, as described below). The board should approve and play an active role in the oversight functions, including the selection, performance management and compensation of the heads of these functions (eg. Chief Financial Officer, Chief Risk Officer, Chief Compliance Officer, Chief Internal Auditor and Appointed Actuary) and the evaluation of their performance and compensation.

Meanwhile, rather than establishing specific oversight functions, boards and senior management of small, less complex FRFIs are expected to ensure that other internal or external functions or processes provide the required level of controls or independent enterprise-wide oversight.

In a further new recommendation, the Revised Guideline indicates that the board should develop a plan to periodically commission independent third-party reviews to assess the effectiveness of the FRFI's oversight functions and processes.

Risk Governance

In Section IV of the Revised Guideline, OSFI proposes several important new requirements with respect to risk management, including the adoption of a RAF, third-party risk management effectiveness reviews, the establishment of a Risk Committee and the designation of a CRO. Each of these is discussed below.


In a major new proposal, OSFI is recommending that each FRFI have a board-approved RAF that guides the amount of risk the FRFI is willing to accept in pursuit of its strategic and business objectives. The RAF should set basic goals, benchmarks, parameters and limits, and should consider all applicable types of risks. The RAF is intended to provide boundaries on the ongoing operations of the FRFI, and details of its proposed contents are contained in Annex C to the Revised Guideline. Proposed contents include a risk appetite statement, specific risk tolerance limits and processes for implementation of the RAF.

Risk Management

In respect of risk management generally, the Revised Guideline also newly suggests that the board should periodically commission independent third-party reviews to assess the effectiveness of the FRFI's risk management systems and practices. This appears to be in addition to the recommended independent third-party reviews, described above, of the FRFI's oversight functions and processes.

Risk Committee

In addition, the Revised Guideline directs that, depending on the nature, size, complexity and risk profile of the FRFI, the board should establish a dedicated board risk committee to oversee risk management on an enterprise-wide basis. Guided by the FRFI's RAF, the risk committee should have a sound understanding of the types of risks to which the FRFI may be exposed and of the techniques and systems used to identify, measure, monitor, mitigate and report on those risks. The risk committee should have a chair that is independent of senior management and all committee members should be independent and an adequate number of committee members should have sufficient knowledge in the risk management of financial institutions. Where appropriate, the risk committee should include individuals with technical knowledge in the risk disciplines relevant to the FRFI.

The risk committee should be responsible for approving at least annually the mandate, competencies and resources of the CRO. It should approve the CRO's performance review and oversee the succession planning for the CRO position and other key positions within the risk management function.


In a further important new recommendation, the Revised Guideline recommends that each FRFI have a designated CRO, with sufficient stature and authority within the organization, and who is also independent from operational management. The CRO should have access to the board and risk committee without impediment, including a direct reporting line to the board or risk committee. (In a footnote, OSFI clarified that "direct reporting line" is intended strictly for functional purposes - administratively, the heads of oversight functions, such as the CRO, generally report to the CEO.)

The new emphasis in the Revised Guideline on the role and function of the CRO is consistent with recent speeches of the Superintendent. The Revised Guidelines notes that the CRO should provide an independent view to the risk committee and the board regarding whether the FRFI is operating within the RAF and should meet in camera with the risk committee on a regular basis.

The Revised Guideline also states that the CRO and risk management function should not be directly involved in revenue-generation or in the management and financial performance of any business line or product of the FRFI. While the CRO and risk management function should influence the FRFI's risk-taking activities, the on-going assessment of risk-activities by the CRO and risk management function should remain independent.

Role of the Audit Committee

The Revised Guideline also contains updated commentary on the role of the audit committee and includes a number of significant new related proposals, including that:

  • all audit committee members should be independent;
  • the Chief Internal Auditor, the Chief Financial Officer and the Appointed Actuary (for insurance companies) should have "direct reporting lines" to the audit committee (subject to the same clarification as above in relation to the CRO); and
  • the audit committee, not senior management, should be responsible for approving external audit fees and of the scope of the audit engagement.

Supervision of the FRFIs

In Section VI of the Revised Guideline, OSFI describes the role of corporate governance in OSFI's supervisory process and notes that open communication between the board and regulators helps promote the mutual trust and confidence essential to the efficiency of the principles-based system of supervision that OSFI follows. OSFI notes that it will undertake a number of approaches, including discussions with the board and senior management, to assess the effectiveness of an FRFI's corporate governance processes and will seek evidence that the processes exist, are operating effectively and that the board is able to fulfill its roles and responsibilities.

As noted above, the draft Revised Guideline is open for comment until September 14, 2012.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions