On November 4th, 2021, Peter Routledge, the Superintendent of Financial Institutions (Canada) (the "Superintendent") announced that the Office of the Superintendent of Financial Institutions ("OSFI") was lifting regulatory restrictions that it had imposed on federally regulated financial institutions ("FRFIs") relating to dividends, share repurchases and executive compensation, effective immediately.
In response to the potential instability created as a result of the COVID-19 pandemic, in March 2020, OSFI had announced a series of temporary regulatory and supervisory adjustments to protect the resiliency of Canada's FRFIs which included expectations that FRFIs would not increase regular dividends, undertake common share repurchases or raise executive compensation.
The Superintendent explained there were three key elements of its reasoning for lifting these expectations: (i) the original rationale for its expectations was no longer applicable and most of OSFI's other regulatory and supervisory accommodations in response to the COVID-19 pandemic have already been removed, (ii) the responsibility for these decisions appropriately rests with the board and management of FRFIs, and (iii) OSFI has confidence in the boards and management of FRFIs to act responsibly when making decisions about capital contribution decisions and expects them to continue to affirm this tendency.
However, the Superintendent noted that OSFI will still expect management and boards of directors of FRFIs to "act responsibly, and employ robust risk management practices and sensitivity analysis that uses conservative and prudent assumptions to guide decisions pertaining to capital distributions".
The Superintendent also restated OSFI's intention to transform itself to respond to an ever-changing risk environment and to prepare for more frequent instability, noting that OSFI is changing how it views risk and expect boards of FRFIs to do so as well. Based on the Superintendent's remarks at the 2021 Global Risk Institute Annual Summit on September 29, 2021, FRFIs and their advisors can expect to hear more from OSFI on disclosures about climate risk, digitalization risk and OSFI's internal organizational transformation.
For a link to the Superintendent's announcement related to dividends, share repurchases and executive compensation, click here.
For a link to the Superintendent's remarks at the 2021 Global Risk Institute Annual Summit, click here.
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