OSFI to focus on quick identification of emerging risks in next three years

The Office of the Superintendent of Financial Institutions (OSFI) says enhanced identification of emerging risks is Priority 1 for the next three years.The regulator intends to improve its ability to identify emerging risks through more inter-sector communication, more focus on market information, and more comparative reviews (e.g. stress testing, liquidity management, securitization and valuation practices), it said in its report, Plans and Priorities 2008-2011.The most prominent external risk cited by OSFI includes economic shocks and the cyclicality of Canada’s financial industry. “The turmoil being experienced by financial markets around the world, which began in the spring of 2007 as a result of the U.S. subprime mortgage market, will cause OSFI, like all global financial regulators, to continue to closely monitor the balance-sheet and off-balance sheet activities of regulated financial institutions,” the report says.”People risks” was cited as the Number 1 internal risk facing the regulator. “Attracting, motivating, developing and retaining skilled staff is a top priority for OSFI, particularly the ability to attract and retain staff whose skills are in demand in the financial sector,” it said in its report.”If OSFI does not place the right resources on the right task, it could constrain OSFI’s ability to perform accurate risk assessments and reform effective interventions, if required.”The risk is exacerbated by the increased changes to the economy, the report adds.Managing changes as a result of the implementation of international financial reporting standards (IFRS) was also listed as a top priority.