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49 Cards in this Set
- Front
- Back
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OSFI, Corporate Governance |
OSFI, Corporate Governance |
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Board responsibilities (4+4)
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Approve FRFl's:
a. Significant strategic initiatives or transactions, e.g., mergers and acquisitions b. Internal control framework c. Succession plans for Board, CEO and, where appropriate, other Senior Management members d. External audit plan, including fees and scope Review and discuss FRFI's: a. Significant operational and business policies b. Internal controls, including implementation and effectiveness c. Organizational structure d. Compliance with applicable laws, regulations and guidelines |
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Board provides high-level guidance to senior management (3)
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a. Board should understand what Senior Management is doing (consistent with strategy and risk appetite)
b. Board should establish processes to assess Senior Management's claims (internal controls) c. Board should ensure regulators informed of substantive issues affecting the FRFI |
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Board responsibilities in subsidiaries (2)
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1. Boards of parent companies should determine what Board structures for the FRFI' s subsidiaries best contribute to effective oversight of subsidiary
2. Parent Boards should exercise adequate oversight of subsidiaries to ensure parent Board can meet responsibilities |
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Board effectiveness (4)
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1. Judgment - should make sound and well-informed decisions, considering FRFl's objectives and risk appetite.
2. Initiative -should be proactive and timely and ready to probe and challenge, as well as guide Senior Management. 3. Responsiveness - should be responsive to issues or deficiencies identified. 4. Operational excellence - the Board should periodically review the adequacy and frequency of the information needed |
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Board independence (4)
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1. Should be independent from Senior Management
2. OSFI does not view any Board structure as guaranteeing independence 3. Board should meet without Senior Management presence 4. Recruitment of new Board members should emphasize independence from Senior Management and have a policy |
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Board chair (2)
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1. should NOT be CEO
2. Should have contact with: a. Other Board members b. Senior Management c. Regulators |
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Board relies on senior management for advice (3)
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a. Senior Management should set out and analyze options for the Board and make recommendations.
b. Senior Management should present relevant material to Board c. Senior Management should provide assurances to Board that policies, processes and controls are adequate |
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Interface between Board and oversight functions (4)
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Oversight function heads should:
1. have sufficient stature and authority 2. be independent of operational management 3. have unfettered access 4. have a direct reporting line to Board or Board Committee |
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Actions when internal controls are breached (3)
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a. Seek assurance from Senior Management prompt corrective action
b. Process in place to monitor problems c. Should consider if problem found in one area exists in others |
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Risk appetite framework (4)
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1. Should be approved by Board
2. Understood throughout organization and part of culture 3. Should set basic goals and limits to risk FRFI willing to accept 4. Should be forward-looking |
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Board Risk Committee requirement (2)
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1. All committee members should be non-executives of FRFI, and there should be knowledge in risk management of fmancial institutions, including relevant technical knowledge
2. Should make sure oversight of risk management independent from operational management and are adequately resourced |
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CRO (4)
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1. Should have sufficient stature and authority, independent from operational management, unfettered acess and direct reporting line to Board or Risk Committee
2. Should not be directly involved in revenue generation 3. Compensation should not be linked to performance of specific business lines 4. Should meet with Board/Risk Committee with and without Senior Management |
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Audit Committee (4+3) |
A. Comprised of nonemployee directors, a majority not affiliated with the institution
B. Statutory duties include: 1. reviewing the annual statements of the FRFI 2. evaluating and approving internal control procedures for the institution 3. meeting with the Chief Internal Auditor and/or the Appointed Actuary C. Discuss Appointed Actuary's Report and the Dynamic Capital Adequacy Test report with insurer's Appointed Actuary D. Approve FRFI's audit plans E. Audit Committee should recommend to shareholders the appointment, reappointment, removal and remuneration of external auditor, and approve the engagement letter. |
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Reasons more regulations for financial institutions (4)
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1. Economy depends significantly on how well its financial services sector functions.
2. System wide impacts can be severe 3. Liquidity problems likely if customers or counterparties lose confidence in soundness 4. Accept funds from public and often deal in long-term commitments |
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Key features of risk appetite framework (4+4) |
1. Linked to the firm's short-term and long-term strategic, capital and financial plans; 2. Qualitative measure may include: a. Significant risks the firm wants to take and why; b. Significant risks the firm wants to avoid and why; c. Attitude towards regulatory compliance; and d. Underlying assumptions and risks. 3. Quantitative measures may include: a. Measures of loss or negative events that the FRFI is willing to accept 4. Be forward-looking; |
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Implementation assessment of risk appetite framework (3) |
a. CRO (or equivalent) should ensure aggregate risk limits consistent with risk appetite statement. b. CRO (or equivalent) should include in regular reports an assessment against the risk appetite statement and risk limits; and c. Internal Audit should routinely assess compliance with the Risk Appetite Framework |
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Duties of Board with regard to internal controls (4) |
(1) Should be approved by Board (2) Should be monitored by Board via regular reports (3) Should be evaluated by Board (4) Act if internal controls breached or deficient |
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OSFI, Supervisory Framework |
OSFI, Supervisory Framework |
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Relationship manager (2)
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1. RM responsible for maintaining up-to-date risk assessment of FRFI
2. May use specialist staff |
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External sources of work used by OSFI (3)
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a. Work of external auditor
b. Work of Appointed Actuary c. Work of FRFI's oversight functions |
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Key principles of risk assessment by OSFI (7)
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1: Focus on Material Risks
2: Forward-looking, Early Intervention 3: Sound Predictive Judgment 4: Understanding the Drivers of Risk 5: Differentiate Inherent Risks and Risk Management 6: Dynamic Adjustment 7: Assessment of the Whole Institution |
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Significant activity
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Fundamental to FRFl's business model and ability to meet its overall objectives
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Inherent risk
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probability of material loss due to exposure to, and uncertainty arising from, current and potential future events
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Material loss
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loss or combination oflosses that could impair adequacy of capital of a FRFI such that there is potential for loss to depositors or policyholders
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Assessment of inherent risk (2)
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a. Assessed without regard to size of activity relative to size of FRFI
b. Assessed before considering quality of FRFl's risk management |
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OSFI categories of risk (4)
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1. credit risk
2. market risk 3. insurance risk 4. operational risk |
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Quality of risk management (2) |
1. Operational management: a. Manage operations and inherent risks on a day-to-day basis. 2. Oversight functions a. Should look at risk at an enterprise-wide level and assess risk at that level. |
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Net risk
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Net risk is inherent risk after mitigation by QRM
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Importance and overall net risk
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Importance of net risk of a significant activity is a judgment of its contribution to the overall risk profile of the FRFI
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Earnings (3)
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1. Earnings are assessed based on their quality, quantity and consistency as a source of internally-generated capital.
2. Assessment considers historical trends and future outlook 3. Under both normal and stressed conditions. |
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Capital (3)
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1. Assessed based on appropriateness of level and quality given Overall Net Risk
2. Both at present and prospectively 3. Under both normal and stressed conditions |
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Liquidity (3) |
1. Assessed based on level of FRFI's liquidity risk and quality of its liquidity management 2. Both at present and prospectively 3. Under both normal and stressed conditions |
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CRR
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Assessment of risk profile after considering earnings, capital and liquidity
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Steps in the supervisory process (3)
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A. Planning Supervisory Work
1. A supervisory strategy prepared annually for each FRFI 2. Supervisory work for each significant activity planned and prioritized considering 3. Supervisory work for each oversight function planned and prioritized considering 4. OSFl's planning also includes a process to compare work effort across FRFls. B. Executing the Supervisory Work and Updating the Risk Profile 1. FRFl-specific monitoring 2. OSFI scans external environment and industry 3. Reviews: more extensive supervisory work than monitoring C. Reporting and Intervention 1. Supervisory Letter i. Discloses or affirms the FRFI's Composite Risk Rating ii. Addressed to CEO, copied to the Chair of the Audit Committee (and Risk Committee, where applicable). iii. OSFI always requests that a copy be provided to external auditor, and to appointed actuary where applicable. 2. Interim Letter may be sent to provide FRFI with timely feedback. Sent to appropriate senior manager within FRFI |
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Oversight functions (4)
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1. Risk Management
2. Compliance 3. Board 4. Senior Management |
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Intervention ratings (5)
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0 Normal
1 Early Warning 2 Risk to financial viability 3 Future financial viability in serious doubt 4 Non-viable/insolvency imminent |
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Davidson, Cap on Non-Pecuniary General Damages |
Davidson, Cap on Non-Pecuniary General Damages |
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Reasons for cap on general damages (4) |
a. Extravagant awards will lead to social burden, resulting in affordability and availability issues b. Not compensatory, but given to make life easier c. Economical damages are fully compensated d. To ensure predictability and stability of awards |
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Ruling in Andrews v. Grand & Toy Alberta Ltd.
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Dickson sets rough upper limit of $100,000 for such awards other than in exceptional circumstances
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Assumptions for cap on general damages (2)
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a. Assumption that pecuniary losses will be fully compensated
b. Assumption that unregulated claims would produce extravagant awards |
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Fenn v. City of Peterborough (2+2)
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1. Reasons Court of Appeal gives for a general damages award of $125,000
a. Trial occurs 1.5 years after last of trilogy cases over which value of money decreased b. Plaintiff suffered more pain than plaintiffs in the trilogy 2. Case not appealed to the Supreme Court |
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Lindal v. Lindal (3)
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1. Supreme Court confronts issue of under what circumstances should trial judge exceed$100,000
2. BC Court of Appeal reduces trial court award of $135,000 to $100,000 3. Justice Dickson's points a. Such awards not seen as compensatory and thus not proper to compare extent of injuries of different plaintiffs b. $100,000 should be increased to include effect of inflation |
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Ter Neuzen v. Korn (2)
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1. Court of Appeal orders new trial when jury grants general damage award of $460,000
2. Supreme Court indicates that it is appropriate in such cases for the court to substitute an amount for that of the jury |
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Lee v. Dawson - Trial level decision
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1. Jury awards general damages of $2,000,000 but trial judge reduces to $294,000 ($100,000 adjusted for inflation)
2. Plaintiff appeals that the cap does not apply |
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Lee v. Dawson - plaintiff arguments in Court of Appeal (5) |
Plaintiff's arguments based on Section 15 of Charter 1. Cap discriminates against seriously injured victims who do not receive full compensation for pain and suffering compared to other injured victims 2. Also discriminated in comparison to victims of defamation where cap does not apply Plaintiff's additional arguments 3. Supreme Court sees cap as a rough upper limit, not a strict rule 4. Contemplated skyrocketing awards and premiums not occurred 5. Cap seen as inconsistent with modern community values |
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Lee v. Dawson - Court of Appeal response (2) |
a. General damages not intended to provide full compensation so should not depend on the seriousness of the injury. c. Court recognizes it might be time to rationalize the cap and the submissions seem compelling, but the Court of Appeal cannot overturn the Trilogy. |
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Lee v. Dawson - Supreme Court ruling and arguments (3) |
1. Dismisses appeal without comment a. Cap creates economic climate where insurers continue to write P&C insurance b. Innocent victims receive full compensation of economic losses where resources are finite c. Supports stable and predictable system of law |
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Cases to which cap does not apply (3) |
1. Sexual assault 2. Defamation (Church of Scientology) 3. Negligence causing catastrophic personal injuries (Young v. Bella) a. No social burden involved b. No crisis regarding size and disparity of assessments |
