OSFI.SupFrm Flashcards
Main responsibility of OSFI relationship manager
Main point of contact between FRFI and OSFI
- responsible for maintaining an up-to-date risk assessment of the FRFI
Recall:
- FRFI = federally regulated financial institution
- OSFI = Office of the Superintendent of Financial Institutions
What will the intensity of supervision will depend on?
The nature, size, complexity and risk profile of a FRFI
Identify the 7 key principles of risk assessment by OSFI when supervising FRFIs
- Focus on material risks
- Should be forward looking & allow for early intervention
- Should use sound predictive judgment
- Should understand the risk drivers
- Should differentiate between inherent risks & management of those risks
- Dynamic adjustment
- Should assess whole institution and not only a certain part of the company
Identify the 9 primary concepts used by OSFI to enable a common approach to risk assessment across FRFIs over time
- Significant activities
- Inherent risk
- Quality of risk management
- NR (Net risk)
- Importance & ONR (Overall Net Risk)
- Earnings
- Capital
- Liquidity
- Risk matrix & CRR (Composite Risk Rating)
Describe - significant activities
- Anything that is fundamental to the business model (LOB, unit, process, etc.)
- It’s the fundamental risk assessment concept within the supervisory framework
Identify the two controls regarding - quality of risk management & briefly describe the primary responsibility of each level of control
Two controls:
Control 1: Operational (day-to-day control of significant activities)
- Essentially manage the day-to-day operations to insure risks are managed
Control 2: Oversight (of finance, compliance, actuarial)
- Independent, entreprise-wide oversight of operational management & assessment of risks that are that at that level
Describe - NR (Net Risk)
Net risk of significant activity = judgment on inherent risk & quality of risk management
- Can be low, moderate, above average, high & trend over time
Describe - Risk matrix, CRR (Composite Risk Rating)
RISK MATRIX: records assessment of significant activities and risks
CRR: culmination assessment (can be low, moderate, above average, high)
Identify the 4 ratings possible of earnings/capital/liquidity, along with the 3 directions possible of earnings/capital/liquidity
Ratings: Strong, acceptable, needs improvement, weak
Direction: Improving, stable, deteriorating
Identify the 3 steps in OSFI’s core supervisory process of the risk assessment of FRFIs & describe them
- Planning Supervisory Work
- Prepared annually, intensity of supervisory work depends on the nature, size, complexity and risk profile of the FRFI
- Is the basis of a more detailed plan.
- OSFI planning also includes a process to compare work efforts across FRFIs, to have broader standards, and to allocate appropriate resources to high-risk FRFIs - Executing Supervisory Work and Updating the Risk Profile
- Continuum of supervisory work: monitoring, limited off-site reviews, extensive on-site reviews, testing or sampling if necessary
- Scan environment (economic, social, political) -> scan industry (competition, customers, technology, etc.) -> scan FRFIs business profile (business model, objectives & strategies, organization) -> identification of emerging issues - Reporting & Intervention
- Ongoing discussions & also formal, written reports
- Supervisory letter is primary written communication to FRFI (includes key findings & recommendations)
Fundamental concept in OSFI’s supervision of risk assessment
Significant activites
OSFI’s steps (4)
Step 1: Identify significant activities
Step 2: Assess inherent risks and quality of risk management
Step 3: Calculate NR (Net Risk) for each significant activity using Appendix C
Step 4: Use risk matrix to assess intervention status and CRR (Composite Risk Rating) - Appendices D & E
If inherent risk = above average & quality of risk management = needs improvement
Determine NET RISK ASSESSMENT
High (see Appendix C for table)
