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Canadian regulators’ response to COVID-19: how are they managing the uncertainty?

A French translation of this article is available here


As the COVID-19 pandemic sweeps the globe, it is no secret that financial institutions (FIs) are facing unpredictable and unprecedented circumstances, the likes of which have not been experienced before. Across Canada, financial regulators are taking swift action to issue renewed guidance to both reporting entities (REs) and customers – in a bid to quell ongoing worry and uncertainty. Much of this guidance points towards revised regulatory deadlines, alternative means to compliance, and the postponement of key consultations and guidance; but what does this mean for the financial services industry looking ahead and how can FIs stay informed?

Regulatory notices

On 13 March 2020, the Department of Finance Canada issued a press release outlining the measures that are being taken to support the economy and financial sector during the current pandemic. It highlighted that FIs play an essential role in the continued stability and health of Canada’s economy. As such, it suggested that instead of allocating resources towards meeting previously announced regulatory changes, FIs should instead focus on ‘managing the uncertainty’.

It would appear that Canadian regulators are heeding this instruction, with many announcing new measures to ease the challenges posed by the pandemic.

The Office of the Superintendent of Financial Institutions (OSFI) has announced that it is working in coordination with federal agencies to make ‘regulatory adjustments’ to ensure that federally regulated FIs remain stable and resilient during the COVID-19 uncertainty. Notably, OSFI has announced that it has lowered its Domestic Stability Buffer (DSB) by 1.25%. The DSB requirement, which enables banks to save during financially strong periods, has now moved from 2.25% to 1.00% of risk-weighted assets. Lowering the buffer will release more than CAD$300bn of additional lending capacity, meaning that funds will be freed up to supply credit to the economy. OSFI is encouraging FIs to use these funds to support Canadian businesses and households, and notes that the funds should not be distributed to shareholders or employees. To maintain certainty, OSFI has assured FIs that the buffer will not be increased for at least 18 months.

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) has taken steps, so as not to place undue pressure on FIs. While it still expects REs to meet their obligations, it understands that some businesses will need to reallocate resources. FINTRAC emphasises, however, that firms should continue to prioritise the submission of suspicious transaction reports (STRs) where possible.

The Canadian Securities Administrators (CSA) published temporary blanket relief (subject to conditions) for market participants from certain regulatory filings. The blanket relief provides a 45-day extension for periodic filings normally required to be made by issuers, investment funds, registrants, certain regulated entities and designated rating organizations on or before June 1, 2020 and for certain other requirements outlined in the orders.

The Investment Industry Regulatory Organization of Canada (IIROC) has issued similar guidance stating that it recognises that a level of regulatory flexibility will be required to enable its members to best serve investors and maintain investor protection. The Mutual Fund Dealers Association (MFDA) has also announced it is taking a ‘reasonable and flexible approach’ to the application of several supervisory requirements during this period.

Regulatory change on hold

Canadian regulators are not the only ones taking steps to mitigate the harm posed by COVID-19 to the financial services industry. Regulators across the globe have announced plans to suspend consultation, policy and rule-making activity until the pandemic has settled. The rationale behind such a move is to give FIs breathing space to focus on current affairs – rather than on moulding their existing activity around upcoming developments.

OSFI has announced that it will suspend all of its consultations and policy development on new or revised guidance until such time that conditions stabilise. This includes the proposed new B-20 benchmark rate for uninsured mortgages – meaning that the current benchmark rate will remain in force until further notice. Moreover, it has delayed the revised capital and liquidity requirements for small and medium-sized banks until 2023. Semi-annual progress reporting, including the implementation of new accounting standard IFRS 17, is to be suspended. IFRS 9 will apply instead during this period, for which OSFI will provide guidance.

Québec’s Autorité des marchés financiers (AMF) has similarly announced that, owing to COVID-19, it is extending the deadline for the submission of certain annual statements. In collaboration with the Ministère de l’Énergie et des Ressources naturelles, AMF has said that any entity that is subject to ‘the Act respecting transparency measures in the mining, oil and gas industries’ may provide their annual statements up to 120 days after the initial prescribed deadline.

It is also interesting to note that the Basel Committee on Banking Supervision has delayed the implementation of Basel IV by a year following lobbying from the financial industry due to the coronavirus chaos, with a new deadline of 1 January 2023. Measures will instead be introduced to provide additional capacity for banks and supervisors to respond to immediate financial priorities resulting from the effect of COVID-19 on the global banking system.

Postponing examinations

As well as pressing pause on developing regulations and guidance, regulators are postponing other activities – especially those that might usually rely on face-to-face interaction. IIROC has suspended its examinations until further notice. FINTRAC is taking similar steps and has announced that it will not be contacting REs to initiate new examinations for the foreseeable future. MFDA has said that, while its enforcement actions will continue, it will be adapting its processes and procedures with regard to interviews and disciplinary hearings – making full use of technology where possible.

After COVID-19: how does the industry recover from this?

The extent to which coronavirus may alter the financial services industry is far from clear. However, while this is undoubtedly a time of uncertainty and confusion, it’s not all bad news.

COVID-19 has brought about a host of new challenges for financial services – from remote working solutions to managing regulatory obligations. But it has also brought a wealth of opportunity. FIs – notorious for being slow to go digital – are embracing tech solutions like never before: online banking is the new normal; remote-working solutions are essential to daily function; automated systems have become pivotal as workforce numbers dwindle.

RegTech will surely flourish post-corona. As new announcements and alterations to the regulatory landscape continue to emerge it will be very important for FIs to ensure they have the most authoritative sources and processes in place to gauge and manage the impact of new timelines, adjustments to procedures and potential rescinded or new regulation and/or guidance.

The current climate will uncover new risks that will need to be managed. But with these risks comes opportunity for innovative solutions and systems. Perhaps now is the time to embrace a move to digital ID, machine readable rulebooks and automated change management?

The financial services industry may not come out of COVID-19 unscathed, but it has shown time and again that it is resilient and capable of rising to the challenge As Canadian regulators and their international peers continue to manage a very fluid environment, you can be assured we will continue to monitor and update the regulatory and FI communities via the most appropriate mediums – stay tuned!

The industry will recover… but it may take on a new, digital form.

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