Talking Regulation with OSFI

Canada’s largest regulator weighs in on international regulatory regimes and the impact of accounting methods.

Romana King | December 11, 2009

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International Regulatory Regimes

Q: What are your views on the mutual recognition of regulatory regimes, which is an important theme in international regulatory fora?

Mutual recognition is an international trend, and it remains a long-term goal that many jurisdictions have an interest in working towards, given the intrinsically global nature of the reinsurance business. But many issues need to be worked out, before any acceptable form of mutual recognition can be implemented. OSFI is an important player on the international scene, with strong representation at the IAIS. Through our discussion paper on reinsurance, we sought the views of the industry in order to play a more informed role in the international fora, where mutual recognition is being debated.

Impact of Accounting Methods

Q: Given economic conditions and close scrutiny of accounting methods there is concern about the mark-to-market accounting rule. From OSFI’s perspective, is the mark-to-market rule too focused on short-term results?  Should the mark-to-market accounting rule stay? Should it be modified? Or replaced?

OSFI has previously expressed concerns with the reliability of fair values where markets are illiquid and encouraged standard setters to engage in additional work to address this issue.

We have supported the need for high quality global accounting standards that assist in maintaining confidence in financial statements. As such, we are supportive of the work undertaken by IASB on a new standard dealing with fair value (IAS 39). We believe in the need for a level playing field for fair value accounting as it’s important that all market participants be able to easily compare Canadian financial institutions to their global counterparts. Until all are on a common accounting standard, that will be difficult, but it is especially difficult now due to the material differences that have emerged in the last year between IFRS, U.S. and Canadian accounting standards.

Q: If the mark-to-market accounting rule should be modified, then how?

We believe that more recognition in the IASB of the challenges with fair value where markets are illiquid is the best place to make improvements. We are very encouraged by the statement by that the IASB will expedite improvements to their standard IAS 39 that covers fair value. The IASB has just released proposed changes that we are studying carefully.

Q: Will Canada follow the U.S. and relax, somewhat, the mark-to-market rule?

As you know Canada is moving to IFRS in 2011 for public entities, which includes all OSFI regulated insurers. Thus we are carefully watching IASB proposals. Also the Canadian Accounting Standards Board is proposing changes to their fair value standard to more closely align with IFRS and bring current Canadian standards more in line with international and U.S. standards. We think this is a good thing to ensure a level playing field for our institutions relative to their non-Canadian peers.