OSFI's Quarterly Update: Sharper Risk Focus, Climate and AI Guidance, Revamped Penalties
OSFI's update expands model risk to AI, standardizes climate risk with AMF, and stiffens penalties. Leaders: update models, capital buffers, climate metrics, and AMP controls.
OSFI's quarterly update: what finance leaders need to know and do now
OSFI's latest quarterly release tightens alignment between risk, supervision, and operational efficiency. The package clarifies capital rules, expands model risk to cover AI, standardizes climate risk views with AMF, and updates the penalties framework to speed remediation.
"OSFI has proactively established an annual discipline of refining our regulatory guidelines and advisories, looking for opportunities to remove unnecessary burden," said Peter Routledge, superintendent of financial institutions. "Our actions have been clear: reduce regulatory burden where possible, sharpen our focus on the most important risks, and enable institutions to remain resilient and competitive in an uncertain world."
Key changes at a glance
- Climate scenario report (OSFI-AMF): A one-time joint report on the standardized climate scenario exercise to build sector-wide capabilities and align how institutions assess physical and transition risks.
- Administrative Monetary Penalties (AMP): Revised scaling for violations after Sept. 11, aimed at proportionality for small and mid-sized firms, alignment with OSFI's risk appetite, current risk conditions, and faster remediation.
- Capital Adequacy (CAR) Guideline: Clarifications reflecting current risks; income-producing real estate criteria maintained; transition period introduced for combined loan products; alignment of US government-sponsored entity treatment with US standards. Related updates apply to the Small and Medium-Sized Deposit-Taking Institutions Capital and Liquidity Requirements Guideline.
- Guideline E-23 (Model Risk Management): Scope expanded to include AI and other non-traditional models to match industry practice and strengthen decision quality.
- Guideline E-15 (Appointed Actuary): Mandatory peer reviews end January 2027, with OSFI retaining authority to request them where needed to reduce duplication and costs.
Why it matters
Capital planning, model governance, and climate risk programs will face closer scrutiny. The penalty framework increases the cost of slow fixes, especially for smaller institutions. Cross-border exposures to US GSEs should now see smoother treatment, reducing friction in capital calculations.
Immediate actions for CFOs, CROs, and Heads of Risk
- Model inventory and governance: Update inventories to explicitly tag AI/ML and alternative models. Extend validation, monitoring, and change controls to match the expanded E-23 scope.
- Climate risk capabilities: Align physical and transition risk metrics with the OSFI-AMF standardized approach. Embed outputs into ICAAP/ORSA and credit pricing where material.
- Capital adjustments: Reassess exposures tied to income-producing real estate and US GSEs. Plan for the transition period on combined loan products and adjust capital buffers accordingly.
- AMP readiness: Review breach taxonomies, scaling, and escalation rules. Tighten issue remediation SLAs and evidence trails to reduce penalty exposure.
- Actuarial oversight: For insurers, map the path to the end of mandatory peer reviews by January 2027. Define triggers for when an OSFI-requested review would apply and maintain readiness.
- SME-DTI impact: For smaller deposit-takers, align liquidity and capital processes with the related updates to the SME guideline set.
Operational checkpoints
- Confirm Board and Risk Committee briefings on the expanded E-23 scope and revised CAR items.
- Update policy documents (Model Risk, Capital, Climate Risk) and associated standards within your policy management cycle.
- Integrate climate scenario results into stress testing and management dashboards.
- Ensure audit trails show prompt remediation steps to mitigate AMP exposure.
Helpful references
For primary guidance and updates, consult the regulators directly:
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