Prudential supervision of banks: the Office's objects and the Superintendent's directions to a bank

The objects of the Office of the Superintendent of Financial Institutions, in respect of financial institutions, include supervising them to determine whether they are in sound financial condition and are complying with their governing statute law and supervisory requirements under that law.

Those objects also include supervising financial institutions to determine whether they have adequate policies and procedures to protect themselves against threats to their integrity or security, including foreign interference.

The Office is also to promptly advise the management and board of directors of a financial institution that is not in sound financial condition or is not complying with its governing statute law or supervisory requirements under that law, and to take, or require the management or board to take, the necessary corrective measures to deal with the situation without delay.

They further include promoting the adoption by management and boards of directors of financial institutions of policies and procedures designed to control and manage risk. Part I of the Act, which is the Office of the Superintendent of Financial Institutions Act, came into force on July 2, 1987.

Under section 645 of the Bank Act, the Superintendent may direct a bank that is committing, or is about to commit, an unsafe or unsound practice in conducting its business or affairs to cease or refrain from the act or course of conduct and to perform the acts the Superintendent considers necessary to remedy the situation.

A direction may also require a bank to take any measures the Superintendent considers necessary to remedy the situation where the bank does not have adequate policies and procedures to protect itself against threats to its integrity or security or does not adhere to them. No direction under subsection 645(1) or (1.1) may be issued unless the bank is provided with a reasonable opportunity to make representations in respect of the matter.

Where the time needed for representations might be prejudicial to the public interest, the Superintendent may make a temporary direction having effect for a period of not more than 15 days. Where a bank has failed to comply with a direction made under section 645, the Superintendent may apply to a court for an order requiring the bank to comply with the direction. OSFI describes its guidelines as outlining expectations for financial institutions. OSFI says it uses its guidance as a basis for its supervision.