Accountability under a single head is unambiguous, and decisions are made quickly. But these are arguments for designing a board with care, not for clinging to the current structure. Photo by PETER J. THOMPSON/Postmedia

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The Office of the Superintendent of Financial Institutions (OSFI), established in 1987, is the federal regulator that oversees the safety and soundness of our banks and insurers. It has helped build a prudential framework that is admired around the world. When the global financial system buckled in 2008, Canada’s stood, with no need of direct financial support for failed institutions.

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Unlike in other countries, however, OSFI concentrates sole responsibility for prudential regulation and supervision in one person. That’s an arrangement almost no comparable regulator would choose today, and it hasn’t been examined in nearly 30 years. We want to be clear: that’s an observation about design, not a criticism of any superintendent. The case for modernizing OSFI’s governance is, not that the institution has failed, but that the world it was built for no longer exists.

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Consider how far OSFI’s reach now extends. Its mortgage stress test, which gauges whether homebuyers could handle higher rates, shapes how much house Canadians can afford. At the moment, that single rule, with effects felt at kitchen tables across the country, ultimately rests on one person’s judgment.

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Since its establishment, the risks OSFI manages have outgrown the capital-and-credit toolkit of traditional supervision. Its new integrity and security powers address threats like foreign interference. Then there are intensifying cyber threats, physical and transition risks of climate change, and the growing call to loosen capital requirements to spur business lending. Each demands trade-offs between stability, competitiveness, resilience and public confidence that no single person, however able, should be left to weigh alone.

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Our recommendation is straightforward: move OSFI from a single-head model to a multi-member structure, such as an independent board of directors, supported by advisory councils with expertise in fast-moving domains like cybersecurity and AI.

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This is not a leap of faith. OSFI’s peers already operate this way. The U.K., Australia and Switzerland all use multi-member governance. Here in Canada in 2019 Ontario created the Financial Services Regulatory Authority (FSRA) around an independent board. With its single superintendent, OSFI is increasingly the outlier.

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The board we propose resembles those already in place at the Ontario Securities Commission and FSRA. Its role would be strategic oversight. It would provide independent advice and oversee the superintendent — approving the budget and policies and challenging whether OSFI is pursuing the right priorities. The superintendent, in turn, would remain responsible for running OSFI’s operations and for executing prudential decisions, like setting the domestic stability buffer, which obliges the largest banks to hold a capital cushion against systemic risks. The division is deliberate. The board would govern and the superintendent supervise.