Canada: Raising The Bar: OSFI Issues Final Guideline On Corporate Governance

On January 28, 2013, the Office of the Superintendent of Financial Institutions Canada ("OSFI") released the final version of its revised Guideline on Corporate Governance (the "Revised Guideline"). The Revised Guideline is the result of a consultation process that began when draft revisions (the "Draft Guideline") to the 2003 Guideline on Corporate Governance were issued for public consultation from August 7, 2012 to September 14, 2012. The Revised Guideline sets out OSFI's expectations for corporate governance at all federally regulated financial institutions ("FRFIs"), and applies to all FRFIs except the branch operations of foreign banks and foreign insurance companies.

It is OSFI's view that strong corporate governance is essential to the safety and soundness of Canada's financial institutions, and that the Revised Guideline will help boards and senior management to identify and manage risks being undertaken by their financial institutions. In addition to complying with the Revised Guideline, OSFI expects the boards and senior management of FRFIs to be proactive, to be aware of best practices related to corporate governance that are applicable to their institutions, and to adopt these best practices where appropriate.

OSFI also expects that FRFIs will conduct a self-assessment of compliance with the Revised Guideline and establish a plan to address any deficiencies. FRFIs are asked to advise their OSFI Relationship Manager in writing of the results of their self-assessment and the related action plans by May 1, 2013. Self-assessments are to be retained by FRFIs and made available to OSFI upon request. OSFI expects that all FRFIs will fully implement the Revised Guideline by January 31, 2014.


The Revised Guideline applies to all FRFIs other than foreign bank branches and foreign insurance company branches. As branches do not have boards of directors and OSFI instead looks to the Chief Agent or Principal Officer to oversee corporate governance matters, the provisions of the Revised Guideline are not directly applicable to branches. However, it is our understanding that OSFI regards many parts of the Revised Guideline (such as enterprise risk management) as being relevant to branches and that it will therefore be important for Chief Agents and Principal Officers of branches to be familiar with and have regard to the requirements of the Revised Guideline. While it is not at all clear how some of the provisions of the Revised Guideline (such as those relating to board independence) may be reflected in OSFI expectations with respect to the corporate governance of a branch, we can expect that others (such as those relating to internal controls) will have direct and clear application to a branch. 


In the Revised Guideline, OSFI has more strongly emphasized that FRFIs should apply the corporate governance guidance having regard to their own specific circumstances, recognizing that individual FRFIs will have different corporate governance practices depending on their size, ownership structure, nature, scope and complexity of operations, corporate strategy and risk profile. The Revised Guideline acknowledges the need for flexibility in adopting the new corporate governance standards, and OSFI has added qualifications and softened certain of the more prescriptive wording and expectations that had appeared in the Draft Guideline.


The Revised Guideline highlights and distinguishes the roles of the board and senior management. The board is responsible for providing stewardship, including direction-setting and general oversight of the management and operations of the entire FRFI, whereas senior management is accountable for implementing the board's decisions and for directing and overseeing the operations of the FRFI.

Board Responsibilities

In Section III of the Revised Guideline, OSFI outlines the essential duties that boards must discharge, in addition to the roles and responsibilities outlined in federal legislation. The section also differentiates between matters to be approved by the board (i.e., the primary functions of the board) and matters to be reviewed and discussed by the board. The Revised Guideline notes that although the latter functions are the responsibility of senior management, the board has a critical role in providing high-level guidance to senior management with respect to these matters.

Board Effectiveness

In respect of board effectiveness, the Revised Guideline sets out a number of recommendations, including regularly conducted self-assessments of the effectiveness of board and committee practices (occasionally with the assistance of independent external advisors) and reasonable representation of relevant financial industry and risk management expertise at the board and committee levels.

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, which OSFI regards as critical, OSFI does not view any one board structure or process as guaranteeing independence. The Revised Guideline recommends that the board document and approve a director independence policy that takes into consideration the specific shareholder/ownership structure of the institution, and that factors in director tenure where appropriate.

Oversight Functions

OSFI expects FRFIs to establish oversight functions that are independent from operational management. The size and sophistication of the oversight functions may vary based on the nature, size and complexity of a FRFI and its inherent risks. The heads of the oversight functions should have sufficient stature and authority within the organization, be independent from operational management and have unfettered access and a direct reporting line to the board. The Revised Guideline requires that the board regularly assess the effectiveness of the FRFI's oversight functions and processes, and conduct a benchmarking analysis of those functions or their processes with the assistance of independent external advisors.


In Section IV of the Revised Guideline, OSFI sets out a number of recommendations with respect to risk governance, which OSFI views as a distinct and crucial element of corporate governance of FRFIs.

Risk Appetite Framework (RAF)

A FRFI should develop and implement a board-approved RAF that is enterprise-wide and tailored to its domestic and international business activities and operations. It should be well-understood throughout the organization, embedded within the FRFI culture and supported by all operational, financial and corporate policies, practices, and procedures of the FRFI. It should also set basic goals, benchmarks, parameters and limits as to the amount of risk a FRFI is willing to accept. Moreover, it should consider the material risks to the FRFI and be forward-looking and consistent with the FRFI's business model, overall philosophy, short-term and long-term strategic plan, capital plan, financial plan, business objectives and corresponding risk mitigation strategy. The RAF should provide boundaries on the ongoing operations of a FRFI with respect to asset class and liability choices, activities and participation in markets that are not consistent with the FRFI's stated risk appetite. The expectation reflected in the Draft Guideline that the board should periodically commission independent third party reviews to assess the effectiveness of the FRFI's risk management systems and practices has been deleted.

Risk Committee

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. The committee members should be "non-executives" and an adequate number of members of the risk committee should have sufficient knowledge in the risk management of financial institutions. The committee should seek assurances from the chief risk officer (CRO) (or equivalent) that the oversight of the risk management activities of the FRFI is independent from operational management, adequately resourced, and has appropriate status and visibility throughout the organization. The risk committee should provide input to the approval of material changes to the FRFI's strategy and corresponding risk appetite. In small, less complex FRFIs, in place of establishing a separate risk committee, the Board should merely ensure that it has the collective skills, time and information to provide effective oversight of risk management on an enterprise-wide basis.

Chief Risk Officer (CRO)

According to the Revised Guideline, each FRFI should have a senior officer who has responsibility for the oversight of all relevant risks across the FRFI (CRO or equivalent), sufficient stature and authority within the organization, and is independent from operational management. OSFI has confirmed that in small, less complex FRFIs, the CRO role can be held by another executive (i.e., one with dual roles). The CRO should have unfettered access and a direct reporting line to the board or risk committee and the  CRO and the risk management function should be independent of the business lines or operational management, and should not be directly involved in revenue-generation or in the management and financial performance of any business line or product of the FRFI.


Section V of the Revised Guideline sets out the role and responsibilities of the audit committee, including that the audit committee should be responsible for approving external audit fees and the scope and terms of the audit engagement, review and approve the FRFI's internal and external audit plans to ensure that they are appropriate and risk based and probe, question and hold regular in camera meetings with the external auditor, chief internal auditor and appointed actuary (for insurance companies) to understand all the relevant issues and resolution of such issues. The Revised Guideline includes an expectation that the audit committee will recommend to the shareholders the appointment, reappointment, removal and remuneration of the external auditors and annually report to the board on the effectiveness of the external auditor.


OSFI will undertake a number of approaches, including discussions with the board, board committees, senior management, and oversight functions, as well as the review of board and board committee material, in order to assess the effectiveness of a 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. An additional expectation is that FRFIs notify OSFI of any potential changes to the membership of the FRFI board and senior management, and any circumstances that may adversely affect the suitability of board members and senior management.


The Revised Guideline raises the bar for corporate governance by introducing a number of significant new regulatory expectations for financial institutions in Canada. Although OSFI has made an effort to incorporate flexibility into the Revised Guideline, there is a concern that the guidance is too heavily targeted towards large financial institutions, and that the new expectations will be onerous and burdensome for smaller institutions to implement. Moreover, according to industry feedback, the expectation that financial institutions will conduct occasional independent third party reviews may prove onerous, expensive and intrusive. The main challenge for many FRFIs will be in determining how to implement the expectations set out in the Revised Guideline given their own particular circumstances. For subsidiaries of foreign parents that may have limited Canadian operations and a minimum number of non-affiliated directors, it may be a real challenge to fully comply with the intent of the Revised Guideline.

The Revised Guideline may be perceived by some as creating another reason why it may be preferable for foreign financial institutions to operate in Canada as a branch rather than by incorporating a subsidiary. However, it is likely that OSFI already has heightened expectations with respect to branch corporate governance and will eventually develop similar guidance for branches, if only to avoid the perception of an unlevel regulatory playing field in Canada.

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.

Nilanka Maldeniya
Richard Da Costa
Miho Felicio
Gordon Goodman
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