Canada: OSFI Issues Final Corporate Governance Guideline For Canadian FRFIs

The Office of the Superintendent of Financial Institutions ("OSFI") has issued a final version of its new guidance with respect to the governance of Canadian chartered federally regulated financial institutions ("FRFIs") (the "Revised Guideline"). The Revised Guideline does not apply to branch operations.

The Revised Guideline replaces OSFI's 2003 Corporate Governance Guideline. OSFI notes that corporate governance practices have evolved significantly over the past ten years and that, in recent years, a number of regulators, international standard-setters and various commentators have published reports highlighting industry best practices and standards with respect to the effective corporate governance of financial institutions. The publication of the Revised Guideline follows an extensive period of consultation with the financial services industry including professional advisers. At the time of the publication of the Revised Guideline, OSFI also published a summary of the key comments received and an explanation of how the issues raised by commentators were dealt with in the Revised Guideline.

The process leading to the finalization of the Revised Guideline can be traced back to the establishment by OSFI in 2010 of a dedicated Corporate Governance Division and the subsequent cross sector review of the corporate governance practices of certain larger FRFIs in 2010 and 2011.


OSFI indicated that the main objectives of the Revised Guideline were to ensure that FRFIs have prudent corporate governance practices and procedures that contribute to their safety and soundness; industry best practices in corporate governance are promoted; the Revised Guideline is consistent with OSFI's updated Supervisory Framework (2011); and that the guidance addresses international standards, as articulated by organizations such as the Financial Stability Board (FSB), the Organization for Economic Cooperation and Development (OECD), the Basel Committee for Banking Supervision (BCBS) and the International Association of Insurance Supervisors (IAIS).

In implementing the Revised Guideline, OSFI has sought to enhance the effectiveness of the Board of Directors of FRFIs (e.g., Board responsibilities and competencies); strengthen the risk governance of FRFIs (e.g., the requirement to develop a 'Risk Appetite Framework' to guide FRFIs' risk-taking activities); and bolster the overall internal control framework of FRFIs (e.g., the role of the Chief Risk Officer and Audit Committee). OSFI notes that such changes are consistent with OSFI's Supervisory Framework, current industry best practices and international standards.


Under the Revised Guideline, OSFI expects Boards and Senior Management to be proactive, and to be aware of best practices related to corporate governance that are applicable to their institution and, where appropriate, institutions should adopt these best practices.

OSFI notes that a FRFI's Board and Senior Management are ultimately accountable for the FRFI's safety and soundness and compliance with the 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 key sections of the Revised Guideline, focus, respectively, on three fundamental components of corporate governance for FRFIs: the role of the Board of Directors; Risk Governance, described as a distinct and crucial element of corporate governance for FRFIs; and the role of the Audit Committee.



OSFI notes that in addition to the roles and responsibilities outlined in the applicable federal legislation, the Board should approve the FRFI's: short-term and long-term enterprise-wide business objectives, strategy and plans, including the Risk Appetite Framework (described below); significant strategic initiatives or transactions; internal control framework; appointment, performance review and compensation of the CEO and, where appropriate, other members of senior management including the heads of oversight functions; succession plans with respect to the Board, CEO and, where appropriate, other members of senior management including the heads of oversight functions; mandate, resources and budgets for the oversight functions; and external audit plan.

The Board should also review and discuss the FRFI's: significant operational and business policies; business and financial performance relative to the Board-approved business strategy and the Risk Appetite Framework; 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 Revised Guideline notes that the latter functions are primarily the responsibility of Senior Management. However, through thorough review and discussion, OSFI notes that the Board has a critical role in providing high-level guidance to senior management. Further, OSFI indicates that the Board should establish processes to periodically verify the assurances provided to it by Senior Management. In response to commentaries from stakeholders the Revised Guideline indicates that Boards of parent companies should determine what board structures would best contribute to effective oversight of the subsidiary operations.


In respect of board effectiveness, OSFI indicates that the Board should regularly conduct self-assessment of the effectiveness of Board and Board Committee practices, occasionally with the assistance of independent external advisors. OSFI notes that relevant financial industry and risk management expertise are key competencies for the Board of an FRFI and that there should be a reasonable representation of these skills at the Board and Board Committee levels. Further, OSFI indicates that Directors should seek internal or external education opportunities in order to fully understand the risks undertaken by their FRFI, as well as the developments in corporate and risk governance practice.


OSFI indicates that the Board should be independent from Senior Management. 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 notes that the Board's ability to act independently of Senior Management can be demonstrated through practices such as having regularly scheduled Board and Board Committee meetings that include sessions without Senior Management present. In addition, OSFI 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 recommends that the role of Chair should be separated from that of CEO, as it is indicated that this is critical in maintaining the board's independence, as well as its ability to execute its mandate effectively.

Interface with Senior Management/Oversight Functions/Internal Controls

The Revised Guideline notes that in order for the Board to fulfill its duties, the Board relies on Senior Management to provide it with sound advice on the organizational objectives, strategies, structure and significant policies of the FRFI. Further, the Revised Guideline indicates that OSFI expects the FRFI to establish oversight functions that are independent from operational management. In addition, the Revised Guideline indicates that the Board should have unfettered access and, for functional purposes, a direct reporting line to the Board or the relevant Board Committee (e.g., Audit, Risk).

The Revised Guideline indicates that the Board should regularly assess the effectiveness of the FRFI's oversight functions and processes and occasionally the Board should conduct a benchmarking analysis of those functions or their process with the assistance of independent external advisors.

As regards internal controls, the Revised Guideline indicates that the Board should approve the overall internal control framework and monitor its effectiveness.

Risk Governance

OSFI notes that risk governance is a distinct and crucial element of corporate governance of an FRFI.

Risk Appetite Framework (RAF)

The Revised Guideline directs each FRFI to have a Board approved RAF that guides risk taking activities of the institution. The RAF should set basic goals, benchmarks, parameters and limits, as to the amount of risk an FRFI is willing to accept, taking into account various financial operation and macroeconomic factors. It should also consider the material risks to the institution, as well as the institution's reputation vis-à-vis policy holders, depositors, investors and customers.

Oversight of Risk

The Revised Guideline indicates that depending on the nature, size, complexity, and risk profile of an institution, the Board should establish a dedicated Board Risk Committee to oversee risk management on an enterprise-wide basis. The Revised Guideline also notes, in response to comments from commentators, that for small less complex institutions, in the place of establishing a separate Risk Committee, the Board should ensure that it has the collective skills, time and information to provide effective oversight of the risk management on an enterprise-wide basis.

Chief Risk Officer (CRO)

The Revised Guideline provides that each FRFI should have a senior officer who has responsibility for the oversight of all relevant risks across the firm. The CRO should have sufficient stature and authority within the organization, and be independent from operational management. The CRO should have unfettered access, and, for functional purposes, a direct reporting line to the Board or Risk Committee (as applicable).


OSFI notes that it is an international best practice for all members of the Audit Committee to be independent and that many FRFIs have moved to this standard. It originally proposed this standard for FRFIs. In the face of opposition from commentators, the Revised Guideline does not seek to change the current standard noting that the current legislation only requires each FRFI to establish an Audit Committee comprised of non-employee directors, a majority of whom are not affiliated with the institution. The Revised Guideline highlights that the Audit Committee, not Senior Management, should recommend to the shareholders, the appointment, reappointment, removal and remuneration of the external auditor and should also agree to the scope and term of the audit engagement and the approval of the engagement letter.


In a final section of the Revised Guidelines, OSFI describes the role of corporate governance in OSFI's supervisory process and notes that effective oversight of an institution by its Board and Senior Management is essential to the maintenance of an efficient and cost effective supervisory system.

Next Steps

OSFI expects FRFIs to conduct a self-assessment of compliance with the Revised Guideline and to establish a plan to address any deficiencies. FRFIs should advise their OSFI Relationship Manager in writing of the results of their self-assessment and the related action plans by May 1, 2013. OSFI indicates that the self-assessments are to be retained by the FRFI and made available to OSFI upon request. Full implementation of the Corporate Governance Guideline by FRFIs is expected by OSFI no later than January 31, 2014.

About BLG

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.

Similar Articles
Relevancy Powered by MondaqAI
Borden Ladner Gervais LLP
Blake, Cassels & Graydon LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Borden Ladner Gervais LLP
Blake, Cassels & Graydon LLP
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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