OSFI updates model risk management guidance and launches public consultation
OTTAWA, ON, Nov. 20, 2023 /CNW/ - The financial services industry is evolving quickly requiring the expectations and guidelines from the Office of the Superintendent of Financial Institutions (OSFI) to keep pace. That is why OSFI has proposed revising the E-23: Model Risk Management Guideline so that it applies to all analytical models used by Federally Regulated Financial Institutions (FRFIs) and federally regulated private pension plans (FRPPs).
The revised guideline includes forecasting economic conditions, estimating financial risks, pricing products and services, and optimizing business strategies. It now also includes models used for non-financial risks such as climate, cyber and tech and digital innovation risks. E-23: Model Risk Management Guideline incorporates input received by during public consultations undertaken in May 2022.
OSFI recognizes that, like deposit-taking institutions (DTIs), federally regulated insurers and FRPPs also heavily rely on models to support their decision-making. Considering this, OSFI is proposing to extend the applicability of Guideline E-23 to include these industries as well. The revised Guideline E-23 adopts a flexible and principles-based approach, enabling federally regulated financial institutions and pension plans to tailor model risk management policies, procedures and processes to their size and complexity.
OSFI invites the industry and public to comment on the Guidelne E-23 revisions until March 22, 2024. Comments can be sent to [email protected]. The final guideline is set to take effect on July 1, 2025. An industry session for FRFIs and FRPPs will be held on January 17, 2024. Click here to register. The revised Guideline E-23 remains in draft form and will be finalized after the public consultation period closes and comments are considered.
Changes to Guideline E-23 will contribute to stronger and more resilient deposit-taking institutions, insurers, and FRPPs, thereby enhancing public confidence in Canada's financial system.
"The revisions made to Guideline E-23 are a significant step towards providing more clarity and certainty to a wide range of federally regulated financial institutions and pension plans about our expectations for model risk management. I would like to thank all those who took time to provide input into our work in May 2022. I invite interested parties to review the revised guideline to ensure that we have captured feedback in a meaningful way. Together, we can strengthen the resilience and stability of Canada's finance system."
SOURCE Office of the Superintendent of Financial Institutions