OSFI Corporate Governance Flashcards
According to OSFI, provide Factors that can cause different corporate governance practices
- Size
- Ownership structure
- Nature, scope, complexity of operations
- Corporate Strategy
- Risk Profile
Define Corporate Governance
• Set of relationship between a company’s management, its board, its shareholders
i. Providing structure for setting company objective
ii. Determines means of attaining objectives and monitoring performance
• Provides incentives for board and management to pursue objectives in interests of company
What is the distinction in the responsibilities between the Board, Senior Management and Oversight function?
- BOD: Responsible for stewardship, direction-setting, and general oversight of management and operations
- SM: Accountable for implementing the Board’s decisions, directing and overseeing operations of FRFI (CEO, individuals directly accountable to CEO)
- OF : Provide enterprise-wide oversight of operation management (CFO, CRO, CCO, Chief Internal Auditor, Chief actuary)
Provide the main functions of the BOD
Approve
• Objectives, strategy plans including Risk appetite
• Strategic initiatives
• Internal control framework
• Appointment, performance review, compensation of CEO
• External audit plan
Review and discuss
• Significant operational and business policies
• Business and financial performance
• Compensation policy for all human resources
• Implementation and effectiveness of internal controls
• Organizational structure
• Compliance with laws, regs and guidelines
Effective BOD should demonstrate what?
- Judgment: Make sound and well-informed decisions considering FRFI objectives and risk appetite
- Initiative: Proactive + ready to challenge/guide SM
- Responsiveness: Responsive to issues identified by SM or regulators
- Operational excellence: Have practices and processes that permit open discussion, debate, and advance consideration of important matters based on relevant and timely info
What is OSFI’s Risk Governance regarding Risk Appetite Framework?
• Be approved by the board
• Guide the risk-taking activities of the FRFI
• Set basic goals, benchmarks and limits to risks FRFI willing to accept
• Be forward-looking and consistent with :
1) Business model and objectives
2) Short/long term strategic plan
3) Capital plan
Discuss the Board Risk Committee
SM should review risk management policies. Board seek assurances from SM risks controls are appropriate
• Oversee risks management of FRFI
• Members should be non-executives
• Should have knowledge in risk management of FI
• Should seek assurance from CRO that OF are:
a) Independent from operational management
b) Adequately resourced
c) Appropriate status and visibility throughout org
Provide the role of the Chief Risk Officer (CRO)
• Senior officer responsible for oversight of all risks
• Should provide regular reports to Board, Risk Committee and SM on risks being assumed by FRFI
• Objectives:
1 - On-going assessment of risk-taking activities
2 - Risk management function
What are the roles of the Audit Committee?
- Review the annual statements
- Approve internal control procedures
- Meet with the Chief Internal Auditor and AA to discuss internal controls and adequacy of reserving
- Discuss the AAR and DCAT with the AA to consider the impact of internal/external audit plans
What are the key features of the Risk Appetite Statement?
- Reflects aggregate level and type of risk FRFI is willing to take to achieve objectives
- Linked to the firm’s short/long-term strategic, capital, and financial plans, as well as compensation plans
- Be forward looking: Consider normal/stressed scenarios
- Should aim to be within FRFI risk capacity
Discuss OSFI’s Supervisory Assessment
- OSFI assess safety and soundness, quality of control and governance processes and regulatory processes
- But Board and SM are ultimately accountable for safety and soundness
- OSFI assess FRFI conditions which can provide useful information to the Board
- Board should consider regulatory findings
Role of Corporate Governance in Supervisory process
- Effective oversight is essential to an efficient and cost-effective supervisory system
- Protects depositors and PHs
- Allows OSFI to use the work of the internal process reducing cost for OSFI to meet its mandate
Why are financial institutions subject to more regulation?
- Economy depends significantly on how well its financial services sector functions
- Can have large mismatches between terms of their assets/liabilities (create investment risk)
- Possible high ratios of debt-to-equity make them more vulnerable
- Liquidity problems likely if loss confidence of customers
- Asset/liabs can be volatile + difficult to price accurately
Discuss Board-approved Risk Appetite Framework (RAF)
- CRO (or equiv) should ensure that aggregate risk limits are consistent with the firm’s risk appetite statement
- CRO (or equiv) should include in regular reports to the Board/Risk Committee, and SM, an assessment against the risk appetite statement and risk limits
- Internal Audit should routinely assess compliance with the RAF on an enterprise-wide basis and in its review of units within a FRFI
