Federal financial regulators Monday issued a revised corporate governance guideline, which pushes firms to ensure their boards are up to the task.
The Office of the Superintendent of Financial Institutions (OSFI) has released a revised version of its guideline on corporate governance, which was first issued in 2003, and sets out OSFI’s expectations on corporate governance at federally regulated financial institutions.
It notes that the most significant changes to the guideline are in the areas of board effectiveness — its composition and competencies; risk governance, including risk appetite frameworks; and the roles of the chief risk officer and the audit committee.
OSFI issued a draft of the proposed new guideline in August, and made some changes in response to the comments received, including revisions to clarify which elements can be applied in a more flexible manner, depending on the size and complexity of the firm. For example, it notes that for smaller firms, the full board or a board committee can serve the function of the risk committee. Also, firms do not necessarily need to have a designated chief risk officer; although, it says there should be a senior individual charged with oversight of all the relevant risks.
The regulator also says that it prefers that the role of the chair and CEO be separated, “as this is critical in maintaining the board’s independence”, and that this is particularly important for financial institutions. However, it refuses to define independence in the guideline, noting that, “there is a risk that [firms] would simply undertake a compliance exercise and not necessarily adhere to the full spirit of independence.”
Now, OSFI expects firms to conduct a self-assessment of compliance with the new guideline and to establish a plan to address any deficiencies. It says firms should advise OSFI of the results of their self-assessment and the related action plans by May 1, and that full implementation of the guideline is expected by January 31, 2014. For directors of small and medium-sized institutions, OSFI will be offering seminars on the guideline in the spring, it adds.
“Strong corporate governance is essential to the safety and soundness of Canada’s financial institutions,” said Julie Dickson, superintendent. “The revised guideline will help boards of directors and senior management to identify and manage risks being undertaken by their financial institutions. This updated guideline reflects OSFI’s supervisory observations, the results of a cross-system review and enhancements to international best practices.”