Macroprudential Policy
52. Macroprudential policy at the federal level has been effective, but better coordination
is essential given multiple provincial authorities’ ownership of prudential tools. The federal
toolkit has a broad coverage of the financial system. OSFI can issue guidelines setting prudential
capital and liquidity requirements for banks, while the DOF can modify the mortgage insurance rules
that prescribe limits on Canada-wide insured mortgages. The financial stability mandate should be
further strengthened given the MoF’s other objectives (e.g. housing affordability). Nevertheless,
non-negligible parts of the financial system lie outside the federal perimeter, including Québec’s DSIFI. Federal-provincial coordination is thus critical to limit policy leakages. Furthermore, the British
Columbia and Ontario governments have implemented housing market measures that constitute as
capital flow management measures.8
53.
The current macroprudential stance is broadly adequate given declining
macrofinancial vulnerabilities (Table 7). The revision of OSFI’s B-20 guidelines, with similar
measures adopted in Alberta, Québec and Saskatchewan, appears to have improved the
underwriting standards of uninsured mortgages. However, additional measures seem warranted to
handle a shift in risky mortgage origination to nonbanks and limit vulnerabilities arising from
HELOCs. OSFI also introduced the domestic stability buffer (DSB), essentially a systemic risk buffer to
improve the resilience of D-SIBs. Announced in December 2018, the increase in the DSB by 25 basis
points to 1.75 percent of total risk-weights assets will come into effect in April 2019. The use of DSB,
which essentially performs the same function as the countercyclical capital buffer (CCyB), could be
made Pillar 1 (currently, Pillar 2) and extended to other deposit-taking institutions.9
FINANCIAL SECTOR OVERSIGHT
Institutional and Cross-cutting Issues
54. OSFI’s powers and governance should be further strengthened. Although the statutory
framework provides OSFI with comprehensive powers and operational flexibility, it lacks the
authority to issue its own legally enforceable regulations. So far, OSFI has relied on the use of
guidelines backed by enforceable instruments, which are accepted by regulated entities as
equivalent. As the use of guidelines may not work effectively in a less benign environment, the
authorities should strengthen the direct enforceability of guidelines. Furthermore, the MoF can
override the prudential judgement of OSFI in some key areas (e.g., licensing and fit and proper
determination). The supervisory framework could be stronger—particularly, OSFI’s decision to reject
8
These tax measures are targeted at nonresident buyers or existing homeowners and should be replaced with
broad-based tax measures that address speculative activities more generally, consistent with the IMF’s Institutional
View on the Liberalization and Management of Capital Flows.
9 For the federal regime, the CCyB is applicable to all deposit-taking institutions, calibrated based on exposures in
Canada, and considered as Pillar 1 measure. The DSB only applies to D-SIBs as a Pillar 2 measure but captures total
exposures.
CANADA
28 INTERNATIONAL MONETARY FUND
a transaction on prudential grounds should not be overridden by the MoF except under exceptional
circumstances and with full public disclosure.
55. Institutional reforms of some key provincial authorities are under way, with an aim to
improve the effectiveness of financial sector oversight. In Ontario, the Financial Services
Regulatory Authority (FSRA) was recently created. In British Columbia, the government announced
its intention to strengthen the Financial Institutions Commission (FICOM)’s autonomy and
governance.
56. Coordination and cooperation work well between federal authorities and between
provincial authorities, but the federal-provincial nexus needs further enhancement. Many wellfunctioning coordination mechanisms are in place, including the SAC and the FISC at the federal
level, as well as the associations of sectoral provincial authorities such as the CSA which effectively
coordinates oversight of securities markets. Cooperation between federal and provincial authorities
has also improved in recent years.
Nonetheless, MoUs still do not exist between OSFI and provincial
authorities, constraining information exchange and policy coordination. The authorities should
explore how to remove barriers that prevent close and meaningful cooperation.
57. The CCMRS initiative should be completed to overcome risks from dispersed oversight
of securities markets. The CCMRS envisages a single Capital Markets Regulatory Authority (CMRA)
responsible for oversight of securities markets in participating provincial jurisdictions and systemic
risk surveillance and mitigation for Canada-wide securities markets. Following the recent Supreme
Court’s ruling that removed legal obstacles, this initiative should be moved forward as a priority. As
with any significant organizational change, managing transition risks properly is key to retain the
strengths of the existing arrangements. Given the current incomplete participation of
provinces/territories in the CCMRS, mechanisms to ensure effective cooperation between the
envisaged CMRA and provincial securities regulators are needed.
58. The authorities have been proactive in monitoring fintech developments. The BOC has
conducted fintech research to assess the impact on the financial system and the central bank's core
functions. The DOF has led efforts to establish a new retail payments oversight framework and
review the prospects for open banking. The HOA's working group on crypto-assets
