OSFI Eyes Intraday Liquidity Risk Management as Key Focus
As part of its ongoing efforts to ensure the stability and resilience of Canada’s financial system, the Office of the Superintendent of Financial Institutions (OSFI) is intensifying its focus on intraday liquidity risk management, particularly in material foreign subsidiaries.
Industry Consultations Planned
In a move aimed at bolstering the country’s banking book management effectiveness, OSFI will also delve deeper into operational aspects of contingency funding plans to better understand asset monetization decisions during stress events. This comes as vulnerability to liquidity risk remains a heightened concern for institutions.
OSFI is set to launch industry consultations on its proposed updates to the Liquidity Adequacy Requirements Chapter 7 – Intraday Liquidity Monitoring, which will cover payment system modernization changes and the introduction of formal intraday reporting requirements. The consultations are expected to take place in calendar Q2 of 2024.
Key Focus Areas
- Intensifying focus on intraday liquidity risk management
- Strengthening banking book management effectiveness
- Addressing emerging threats to integrity and security
- Monitoring and mitigating other key risks, including:
- Credit risks
- Market volatility
- Cyber and technology risks
- Climate-related risks
- Third-party outsourcing risks
- Transmission risk from the less-regulated or unregulated financial sector
Liquidity and Funding Risk Vulnerabilities
OSFI will continue to assess liquidity and funding risk vulnerabilities at individual institutions and require rapid remediation of material supervisory concerns. In this regard, institutions are expected to improve their reporting and operational capabilities to ensure they are effective, maintain data integrity, and respond promptly to market disruptions.
Integrity, Security, and Foreign Interference
As the global landscape becomes increasingly complex, OSFI is urging financial institutions to remain vigilant against threats to their integrity and security. The pace of social and political conflict is rising globally, heightening the risk of geopolitical instability and potential attacks on Canadian institutions.
To address these new and growing risks, OSFI has established a National Security Sector and created an Integrity and Security Risk Division to lead integrity and security supervision and policy. In 2024, the agency issued an Integrity and Security Guideline with policy and procedure expectations for institutions.
Conclusion
In conclusion, OSFI is committed to ensuring the stability and resilience of Canada’s financial system by intensifying its focus on intraday liquidity risk management, strengthening banking book management effectiveness, and addressing emerging threats to integrity and security. As the global landscape continues to evolve, institutions must remain vigilant against the growing risks posed by these new challenges.