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This page answers the most frequently asked questions from provincially regulated financial institutions (“PRFI”) regarding BC Financial Services Authority’s (“BCFSA”) Assessment Criteria. The responses should be read together with the Supervisory Framework and Assessment Criteria.
The Assessment Criteria was developed as an internal tool to guide supervisors in assessing the safety, soundness, and stability of PRFIs. A standardized approach enhances the consistency and comparability of BCFSA’s assessments.
BCFSA’s Supervisory Framework and Assessment Criteria is not restricted to a specific organizational structure. PRFIs should not restructure or reorganize their processes to align with the functions in the Assessment Criteria. However, PRFIs should consider the cost-benefit implications of a particular oversight structure before selecting the one that best meets their needs.
BCFSA’s overall assessment of an oversight function is based primarily on its effectiveness in overseeing the mitigation of risk in the context of its mandate while considering the nature, scope, complexity, and risk profile of the PRFI. Accordingly, in assessing the adequacy and effectiveness of a particular structure, BCFSA will consider what is necessary, given the context of the PRFI.
Where a PRFI lacks some or all the oversight functions, BCFSA looks to the other functions within or external to the PRFI that handle the corresponding oversight responsibilities. Some examples include operational reviews by other branches, outsourcing arrangements, and senior management activities. In the absence of effective oversight, BCFSA will increase its supervision and recommend or require that the PRFI implement an appropriate level of oversight.
No. The criteria are not required standards but considerations that supervisors will use, when appropriate, to guide their assessments of the effectiveness of the PRFI’s oversight functions.
As the Supervisory Framework was designed to apply to all types and sizes of financial institutions regulated by BCFSA, words like “appropriateness of”, “adequacy of”, and “extent to which” have been chosen deliberately for supervisors to exercise sound and informed judgment in applying the criteria to the unique circumstances of each PRFI. The application and weighting of individual criteria will depend on the nature, scope, complexity, and risk profile of the PRFI, and will be assessed along with performance in rating the overall effectiveness of the function.
BCFSA is committed to overseeing the implementation of supervisory ratings through an appropriate level of training and a quality review process to ensure that the criteria are applied both consistently across PRFIs and in the context of each PRFI.
BCFSA’s relationship managers will be prepared to discuss the rationale for their assessments as part of the supervisory process.
Several key indicators are commonly used by both the PRFIs and BCFSA. Those considered in the assessment of a particular PRFI would depend on the local economy, the type and size of the PRFI, and on the indicators used by the PRFI itself.
BCFSA’s Supervisory Framework is a conceptual framework designed for universal application. What is appropriate for a PRFI depends on what is needed to mitigate the risks inherent in its particular activities. The criteria need to be sufficiently flexible to allow supervisors to apply them to the unique nature, scope, complexity, and risk profile of each PRFI.
BCFSA focuses on assessing the safety, soundness, and stability of a PRFI. This assessment is reflected in the composite risk rating, which is the primary rating under BCFSA’s Supervisory Framework. The composite risk rating is an integrated assessment of a PRFI’s overall net risk, liquidity, capital, and earnings. The overall net risk is a weighted aggregation of the net risk in each of the PRFI’s significant activities and incorporates an assessment of the quality of risk management for those activities. Hence, the quality of risk management (operational management and oversight functions) contributes to the composite risk rating through the assessment of overall net risk.
Yes. Supervisory ratings are strictly confidential and may not be disclosed to the public. However, PRFIs may disclose such information to directors, officers, employees, auditors, actuaries, securities underwriters, or legal advisors, provided the PRFI ensures the continued confidentiality of the information. Please consult BCFSA should you wish to share supervisory ratings with any other party.
BCFSA shares its views of sector risks when necessary. These views are structured so that individual PRFI ratings cannot be identified and proprietary information is not disclosed. BCFSA reserves the right to disclose supervisory ratings to Stabilization Central Credit Union, Central 1 Credit Union, Assuris, and the Property and Casualty Insurance Compensation Corporation when necessary.
No. Since inherent risks are specific to the nature of a PRFI’s significant activities, including its products and services, distribution channels, and target markets, it is not feasible to develop common criteria.
BCFSA’s Supervisory Framework defines six inherent risk categories. These categories represent a broad classification of the risks that are generally applicable to PRFIs. Most risks can be considered within one of these six categories. For example, settlement risk may be considered a subset of credit risk.
There is no differentiation between responsibilities that are best undertaken by the full board versus those that are better handled by a board committee. This determination would be made by the board.
The performance indicators, located within the Board of Directors section, are examples of best practices that BCFSA will measure against when conducting reviews. Please refer to BCFSA’s Governance guideline for expectations of the Board of Directors, including performance measures.
For both strong and acceptable ratings, a PRFI’s capital must meet or exceed the PRFI’s internal target and have positive trend expectations over the following 12 months. A strong capital rating reflects a more than sufficient risk profile, with capital management policies and practices that are superior to generally accepted industry practices. An acceptable capital rating reflects a sufficient risk profile, with capital management policies and practices that are comparable to generally accepted industry practices.