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A Regulator’s Perspective on ERM

This document provides insights into the perspective of a regulator, OSFI, on enterprise risk management (ERM). It discusses OSFI's mandate, supervisory framework, and the role of risk management in banking and insurance. It also touches upon the importance of corporate governance and financial condition reporting.

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A Regulator’s Perspective on ERM

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  1. A Regulator’s Perspective on ERM CAS / SOA ERM Symposium Washington, July 29, 2003 Allan Brender

  2. Background on OSFI • Federal supervisor and regulator • Integrated - cover insurers and deposit takers • Protect rights of depositors and policyholders • Organized by function, not by industry • Cross-cultural fertilization

  3. OSFI’s Mandate • Determine whether FI’s are in sound financial condition and in compliance • Advise management and directors if the FI is not in sound financial condition or in compliance • Monitor / evaluate sectoral events that may have a negative impact on financial condition • Promote the adoption by FI’s of policies and procedures to control and manage risk

  4. OSFI’s Mandate Carry out regulation and supervision while recognizing that • Boards of directors are responsible for management of the FI • FI’s operate in a competitive environment that necessitates the management of risk • FI’s can experience financial difficulties that can lead to their failure

  5. Supervisory Framework • Identify significant activities • Evaluate inherent risk in each activity • Evaluate the quality of risk management for each risk • Rate net risk; determine risk direction

  6. Supervisory Framework • Consider capital and quality of earnings • Determine a composite rating www.osfi-bsif.gc.ca/eng/documents/practices/docs/framew_e.pdf

  7. RM in Banking • Emerged from Basel Accord • Relationship between RM and capital • Interaction of RM and capital requirements • RM was accepted as something more than a regulatory requirement • RM became an important part of banking culture

  8. RM in Insurance • Emerging slowly • Insurers and actuaries are sensitive to others’ risks • Insurers concentrate on a few specific risks of their own • They miss out on many others • Valuation models • Product design • Time scale is a factor • A significant culture change is required

  9. Appointed Actuary or CRO ? • Role of the AA • Role of the CRO • Who has the broader horizon? • Whistle blowing

  10. Financial Condition Reporting • DST, DCAT, DFCA, DFA, … • AA in Canada is required to prepare an annual financial condition report using DCAT • Aimed at directors and senior management • OSFI receives a copy • DCAT as a risk management exercise

  11. ERM in Practice • Solid corporate governance • Well-documented policies, procedures, and limits • Appropriate monitoring and reporting • Willingness to take necessary action

  12. www.osfi-bsif.gc.ca Thank you!

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