Financial Crime World

OSFI Outlines New Framework to Ensure Safe Development of Artificial Intelligence in Canadian Financial Industry

Toronto, Canada - The Office of the Superintendent of Financial Institutions (OSFI) has released a new report outlining four main principles aimed at ensuring the safe development and implementation of artificial intelligence (AI) in the Canadian financial industry.

Four Main Principles

The report, which was developed following the Financial Industry Forum on Artificial Intelligence, brings together experts from industry, government, and academia to discuss safeguards and risk management for the use of AI in the Canadian financial sector. The four principles outlined in the report are designed to strike a balance between setting robust regulations and encouraging innovation, allowing financial institutions to transform and remain competitive.

  • Principle 1: Effective Risk Governance
    • Financial institutions must have robust risk management frameworks in place
    • Creation of a Board Risk Committee and appointment of a Chief Risk Officer
  • Principle 2: Cyber Resilience Testing
    • Intelligence-led Cyber Resilience Testing (I-CRT) Framework introduced by OSFI
    • Provides methodology and guide for Financial Regulatory Entities (FREs) conducting I-CRT assessments
  • Principle 3: Transparency and Accountability
    • Financial institutions must be transparent about their use of AI
    • Audit committees play a critical role in ensuring effective oversight
  • Principle 4: Continuous Monitoring and Improvement
    • Financial institutions must continuously monitor and improve their AI systems

OSFI Introduces New Framework for Cyber Resilience Testing

In related news, OSFI has introduced the Intelligence-led Cyber Resilience Testing (I-CRT) Framework, which provides a methodology and guide for Financial Regulatory Entities (FREs) conducting I-CRT assessments. The framework aims to ensure that FREs are able to proactively identify and address issues with their cyber resilience.

OSFI Proposes New Guidelines for Crypto Assets

OSFI has also proposed new guidelines for the capital and liquidity treatment of crypto assets, which will replace the interim advisory issued in August 2022. The new guidelines aim to provide clarity and consistency on the treatment of crypto assets, ensuring that they are properly incorporated into financial institutions’ risk management frameworks.

Risk Governance and AI Development

As part of its efforts to ensure the safe development of AI, OSFI has emphasized the importance of effective risk governance in the financial industry. The organization has highlighted the need for financial institutions to have robust risk management frameworks in place, including the creation of a Board Risk Committee and the appointment of a Chief Risk Officer.

Audit Committee Role

In addition to risk governance, OSFI has also emphasized the critical role that audit committees play in ensuring the effective oversight of financial institutions. The organization has highlighted the importance of audit committees having sufficient authority and autonomy from management, as well as unfettered access to the board or relevant committee for reporting purposes.

Conclusion

The development of AI in the Canadian financial industry presents both opportunities and challenges. As such, it is essential that financial institutions have robust risk management frameworks in place, including effective governance structures and audit committees. OSFI’s new report and guidelines aim to ensure that the development and implementation of AI are done in a safe and responsible manner, allowing financial institutions to remain competitive while protecting consumers and maintaining market stability.