Institutional Setting
44. Financial sector oversight is the responsibility of multiple federal and provincial
authorities. The lion’s share of financial institutions (particularly, banks and insurers) are federally
regulated, while securities markets are overseen by provincial authorities. Some D-SIFIs are
provincially regulated; e.g., Autorité des marchés financiers (AMF) supervises Québec’s major credit
cooperative group. Other deposit-taking institutions (loan and trust companies, and credit unions),
insurers and private pension funds can be licensed and regulated under federal or provincial
regimes. At the federal level, the Office of the Superintendent of Financial Institutions (OSFI) is
responsible for prudential oversight of federally regulated financial institutions. Conduct oversight of
banking business is under responsibility of the Financial Consumer Agency of Canada (FCAC),
while
the BOC, the DOF and three provincial securities regulators share responsibility of overseeing
financial market infrastructures (FMIs) “designated” as systemically important (or as prominent
payment systems). The remaining responsibilities lie with provincial authorities, including prudential
oversight of provincially regulated financial institutions and conduct oversight of all nonbanking
businesses. Each province/territory can set its own regulatory and supervisory frameworks. Public
pension funds have independent governance structures.
45. A substantial part of the financial system is covered by federal crisis management and
safety net arrangements that are well-established. By law, the Minister of Finance (MoF) has the
mandate of maintaining overall financial stability in Canada. At the federal level, multiple agencies
are involved in crisis management and safety net, including the BOC, the Canada Deposit Insurance
Corporation (CDIC), the DOF and OSFI. CDIC is the resolution authority for its member deposittaking institutions and the federal deposit insurance system (DIS) administrator. The BOC will soon
become the resolution authority for domestic designated FMIs. Each province/territory has its own
crisis management and safety net arrangements.
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INTERNATIONAL MONETARY FUND 25
46. There are several inter-agency coordination forums for financial sector oversight and
safety net. At the federal level, the Senior Advisory Committee (SAC) is the main forum to discuss
financial sector policy issues and address systemic matters, including crisis preparedness. The
Financial Institution Supervisory Committee (FISC) is the forum to exchange information related to
supervision of federally regulated financial institutions and deal with institution-specific problems
(i.e., early intervention). On resolution, the CDIC’s Board is the decision-making body of CDIC, while
the BOC chairs the committee for coordinating resolution of designated FMIs. Provincial authorities
also set up four associations along the line of sectoral competency. These associations mainly serve
as platforms for exchanging information and coordinating policy development. The only federalprovincial forum is the Heads of Agencies
Committee (HOA) for coordination largely on
issues related to securities markets.
47. The responsibility for systemic risk
oversight is not explicitly assigned to any
specific body. At the federal level, the BOC albeit
with no explicit mandate plays a leading role in
systemic risk surveillance; policy discussion takes
place at the SAC, which in turn provides advice to the MoF. Powers over macroprudential tools lie
with the Department of Finance (DOF) and OSFI.
Systemic risk oversight at the federal level appears
adequately effective, in part due to strong collegial culture and inter-agency cooperation. However,
such effectiveness becomes less apparent at the provincial level or with respect to federal-provincial
collaboration on these issues.
Systemic Risk Oversight
48. The current arrangement seems to have worked well, but an institutional
modernization is essential to ensure effective systemic risk oversight going forward. The
financial system has been evolving rapidly, with new exposures and instruments, complex
interconnectedness, and fintech developments blurring traditional financial sector boundaries.
Significant vulnerabilities are emerging in nonbank financial sectors. The prolonged period of
benign macrofinancial conditions may have masked important gaps that could undermine policy
responses at time of stress. The spread of systemic risk oversight responsibilities over multiple
government layers and across sectoral boundaries has prevented the development of
comprehensive Canada-wide framework for systemic risk surveillance and mitigation. These factors
call for concerted efforts to modernize the current arrangement to overcome data gaps, enhance
the surveillance capacity, develop and implement policies more inclusively and effectively, and
increase policy transparency.
49.
Steps can be taken to improve the current system with a more formalized
arrangement for systemic risk oversight. Establishing a single body with a clear mandate and
appropriate powers remains a preferred recommendation, but incremental improvements within the
current framework can be made. First, the BOC should lead systemic risk surveillance in cooperation
Committee Statutory BOC CDIC DOF FCAC OSFI
CDIC's Board Yes o O ooo
Committee for resolution of
designated FMIs Yes O oo o
Financial Institutions Supervisory
Committee (FISC) Yes o o o o O
Heads of Agencies Committee
(HOA) 1/ No O o o
Senior Advisory Committee (SAC) No o o O o o
Notation: O indicates chair; o indicates member.
Inter-agency Committees at the Federal Level
1/ Membership also includes four provincial securities commissions—Alberta Securities
Commission, AMF, British Columbia Securities Commission, and Ontario Securities Commission.
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26 INTERNATIONAL MONETARY FUND
with relevant authorities. A more unified approach to data collection needs to be developed to
support Canada-wide surveillance. The BOC should report risk assessments to the existing interagency bodies and in its Financial System Review. Second, there should be a federal-provincial
platform to discuss systemic risk issues and formulate policy responses. The HOA could be one
option. To perform this function effectively, the HOA needs to redefine its terms of reference and
expand its membership to include all relevant provincial prudential regulators. Third, while the
existing competent authorities remain responsible for implementing policies within their respective
mandates, the HOA should have the ability to make recommendations to all relevant authorities on
a “comply or explain” basis, or similar arrangements, to strike a right balance between enhancing
accountability and respecting autonomy. Fourth, a robust transparency framework should be
adopted, including agencies’ roles and responsibilities, risk assessments, and policy decisions and
actions.
50. Over time, the authorities should review whether systemic risk oversight under the
HOA leadership with no statutory mandate is adequate. One potential challenge is that systemic
threats may emerge beyond the existing competent authorities’ remit. The envisaged Capital
Markets Stability Act, which would consolidate responsibilities at a single body, can further
strengthen monitoring and managing systemic risk in capital markets. This can support the
development of a more complete macroprudential policy framework for nonbanks.
Crisis Management
51. Canada-wide crisis preparedness should be further strengthened. Since the last FSAP,
federal authorities, the Canada Securities Administrators (CSA) and AMF have individually continued
upgrading their contingency plans and running exercises to test their readiness. Coordination
between federal and provincial authorities has also improved, with the BOC and CDIC entering new
memorandums of understanding (MoUs) with key provincial authorities. Nevertheless, no single
body is in charge of Canada-wide crisis preparedness. To further strengthen the existing
arrangements, the SAC should play a key role in overseeing crisis preparedness at the federal level,
with the objective of developing a comprehensive, functioning integrated plan. The SAC should also
act as the federal coordinator with key provincial authorities to carry out Canada-wide contingency
planning and testing exercises. While continuing to serve as an advisory body to the MoF, the SAC
should adopt written terms of reference to clarify its roles and increase its accountability. Additional
federal-provincial MoUs, particularly with OSFI, should be put in place.