OSFI Supervisory Framework

Question 1

Main responsibility of OSFI relationship manager.

Answer 1

They are the main point of contact between FRFI and OSFI. They are responsible for maintaining an up-to-date risk assessment of the FRFI.

Question 2

Key principles for risk assessment. (7)

Answer 2

• identify material risks
• should be forward-looking and allow for early intervention
• use sound predictive judgement
• understand risk drivers
• differentiate between inherent risks and management of those risks
• dynamic adjustment
• assess whole institution by calculating a CRR (Composite Risk Rating)

Question 3

Primary concepts of risk assessment. (9)

Answer 3

• significant activities
• inherent risk
• quality of risk management
• NR (Net Risk)
• importance and ONR (Overall Net Risk)
• earnings
• capital
• liquidity
• risk matrix and CRR (Composite Risk Rating)

Question 4

Describe significant activities.

Answer 4

• anything that is fundamental to the business model (LOB, unit, process, …)
• it’s the fundamental risk assessment concept within the supervisory framework

Question 5

Describe quality of risk management.

Answer 5

CONTROL LEVEL 1: operational (day-to-day control of significant activities)
CONTROL LEVEL 2: oversight (of finance, compliance, actuarial, …)

Question 6

Describe NR (Net Risk).

Answer 6

• Net Risk of significant activity = judgement on inherent risk and quality of risk management
• can be LOW, MODERATE, ABOVE AVERAGE, HIGH + trend

Question 7

Describe risk matrix, CRR.

Answer 7

RISK MATRIX: records assessment of significant activities and risks.
CRR: culmination of assessment. Can be LOW, MODERATE, ABOVE AVERAGE, HIGH

Question 8

Core supervisory processes of risk assessment. (3)

Answer 8

• Planning
• Execution and updating risk profile
• Reporting and intervention

Question 9

Fundamental concept of OSFI’s supervision of risk assessment.

Answer 9

Significant activities

Question 10

OSFI’s steps (4).

Answer 10

STEP 1: identify significant activities
STEP 2: assess inherent risks and quality of risk management
STEP 3: calculate NR for each significant activity using Appendix C
STEP 4: use risk matrix to assess intervention status and CRR - Appendices D and E