This bulletin provides a comprehensive overview of the key regulatory developments that impacted the banking sector in 2024 and offers insights into what to expect in 2025. Highlights include the Office of the Superintendent of Financial Institutions' (OSFI) updated Supervisory Framework, new guidelines on integrity and security, and significant changes in operational resilience and third-party risk management. Additionally, financial flexibility measures within prudential guardrails, such as new mortgage regulations and anti-money laundering requirements, are covered. As the digital transformation of banking continues, legislative changes aimed at enhancing consumer protection and the evolving landscape of open banking and artificial intelligence are explored. Stay informed and prepared for the regulatory shifts ahead.
Key Developments in Financial Institutions Regulation
1. OSFI’s New Supervisory Framework and Focus On Non-financial Risks
There were several major changes from OSFI in 2024, applicable to all federally regulated financial institutions (FRFIs):
- OSFI issued a major update of its Supervisory Framework, effective as of April 1, 2024. It expands OSFI’s 4-point risk rating scale to 8 points, intended to provide FRFIs with an earlier indication of OSFI’s supervisory concerns. A FRFI’s overall risk rating will be based on business risk and financial resilience, but also on non-financial risks stemming from operational resilience and risk governance.
- As detailed in our bulletin, "Final OSFI Integrity and Security Guideline Released", OSFI introduced a new guideline requiring FRFIs to have policies and procedures in place to counter threats to their integrity or security, including foreign interference. The majority of the guideline is effective as of January 31, 2025. This follows the expansion of OSFI’s mandate in the federal 2023 Budget legislation to include oversight of FRFI’s integrity and security.
- In August 2024, OSFI issued an updated Guideline E-21: Operational Resilience and Risk Management. As outlined in our bulletin, "OSFI Issues Updated Operational Risk Guideline and Pilots New Approach", OSFI’s expected outcome remains that operational risk management practices support operational resilience during disruptions. The governance and risk management expectations are in force, with a phased implementation over 2025 and 2026 for the remainder of the guideline. Testing for all critical operations must be completed by September 2027.
- OSFI made significant changes in 2023 to Guideline B-10: Third Party Risk Management, which came into effect in May 2024. In 2024, the guideline was extended to foreign branches, effective March 31, 2025.
- In November 2024, OSFI issued a Notice on Culture Risk Management, which was effective immediately for all FRFIs. It replaced the draft Culture and Behaviour Risk Guideline previously published for consultation, although updated guidance is expected in 2025.
2. Some Financial Flexibility Within Prudential Guardrails
Although 2024 saw multiple interest rate decreases, real estate and related lending continued to impact banks’ credit risk. The federal government and OSFI both continued to encourage banks to actively mitigate this risk, while opening up options for more flexibility:
- OSFI announced a new loan-to-income (LTI) approach for uninsured mortgage portfolios in March 2024. The expected limit is roughly a 4.5x LTI multiple, but applicable to a bank’s overall portfolio, not individual borrowers, and with some permitted variations per institution. Banks are expected to adhere to LTI limits beginning in their fiscal Q1 2025.
- Effective as of November 21, 2024, OSFI eliminated the Minimum Qualifying Rate for some uninsured mortgagors switching to a new institution at renewal. Commonly referred to as a “straight switch”, more details can be found in our bulletin, "OSFI Issues Updates for Mortgage Qualifying Rate, Culture Risk and Funding".
- The 2024 Federal Budget announced support for 30-year mortgage amortizations for insured first-time home buyers, and increased the RRSP withdrawal limit for first-time buyers to $60,000. In September, the 30-year amortization was extended to all buyers of newly built homes and the insured mortgage cap was increased to $1.5 million, effective December 15, 2024.
- The broader mortgage sector became subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its regulations, when changes came into effect on October 11, 2024. More details are available in our bulletin, "New Anti-Money Laundering Requirements for Mortgage Administrators, Mortgage Brokers and Mortgage Lenders".
- In November 2024, OSFI issued a Revised Regulatory Notice on Commercial Real Estate Lending, emphasizing a prudent approach to forbearance practices.
3. Supporting Financial Consumers During Banking Innovation
The digital transformation of banking services continued its rapid pace in 2024, but during a time when many Canadians were focussed on the cost of living. The federal government responded to both with several legislative changes and consultations on possible changes:
- The 2024 Federal Budget contained some long-awaited details on Open Banking, as forecast in our bulletin, "Digital Innovation and Financial Services: What to Expect in 2024". The Consumer-Driven Banking Act confirmed the framework’s governance would be overseen by the Financial Consumer Agency of Canada (FCAC) and its processes established by a technical standards board. More details were promised in the 2024 Fall Economic Statement regarding the remaining elements, including accreditation and common rules that will cover national security, liability, and privacy, pending the Fall Economic Statement’s related legislation.
- The Retail Payment Activities framework kicked off with mandatory registration with the Bank of Canada by operating payment service providers (PSPs) between November 1-15, 2024. Banks will be key participants in supporting its “safeguarding of funds” requirements by September 2025, and PSPs will be professional trustees under the Canada Deposit Insurance Corporation Act.
- Artificial intelligence continued to be a focus in 2024, as regulators sought to understand and mitigate its risks. More details are contained in our bulletin, "Navigating Artificial Intelligence Risks for Financial Institutions: 2024 Insights from OSFI, FCAC and the AMF".
- In August 2024, the Department of Finance consulted on several policy options to enhance consumer protection as Canadians shift to more electronic banking and digital products. As outlined in our bulletin, "Finance Canada Consults on Changes to Financial Institution Statutes", possible changes include requiring banks to prevent or delay transactions they believe to be fraudulent or associated with a scam, plus liability for unauthorized transactions.
- As more pre-authorized debits (PADs) co-exist with instant e-transfers, the 2024 Federal Budget proposed a cap of $10 for non-sufficient funds (NSF) fees. Our bulletin, "Holiday Savings for Financial Consumers? Proposed Regulations to Limit NSF Fees" provides details on the proposed regulations published in November 2024.
Looking Ahead
As outlined above, many new or updated OSFI guidelines are expected to take effect in 2025, and more guidance on culture, governance and risk management has been telegraphed by OSFI. OSFI has also indicated that it will be consulting on Regulatory Compliance Management in 2025.