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Thinktank- Time To Change Single Head Governance Of Canada’s OSFI

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  • Since its creation in 1987, the Office of the Superintendent of Financial Institutions (OSFI) has served as Canada’s federal micro-prudential regulator, operating under a single-head governance model that was suitable at the time but has not undergone a major review in nearly three decades.
  • Particularly following the 2008 financial crisis, OSFI’s activities have expanded in response to a more complex and rapidly evolving environment in which Canadian financial institutions operate. Meanwhile, governance practices across the financial sector have modernized, leaving OSFI’s structure increasingly out of step with its domestic and international peers.
  • To modernize OSFI’s governance, policymakers should mandate regular parliamentary oversight and introduce a multi-member model, such as a board of directors supported by advisory committees. These changes would strengthen transparency, accountability, and diversity of perspectives, ensuring that OSFI remains a credible and responsive regulator.
  • OSFI would also benefit from a periodic review of its governance framework. A formal review cycle, at least once every decade, would help keep its governance model current, effective, and aligned with its expanding responsibilities.

Introduction

Canada’s financial system faces a brave new world of risks, from geopolitical fragmentation and cyber threats to climate-related shocks, that place new demands on its regulators. But the governance structure of the Office of the Superintendent of Financial Institutions (OSFI), the country’s federal prudential regulator, has remained largely unchanged for decades.

OSFI was established in 1987 to ensure the safety and soundness of the Canadian financial system, based on recommendations from the Estey Commission. It was formed by consolidating the Department of Insurance and the Office of the Inspector General of Banks.

A Superintendent, supported by deputies and staff, holds sole responsibility for prudential regulation and supervision. While OSFI is an independent agency, it is accountable to Parliament through the minister of finance. Its internal governance includes a Departmental Audit Committee (DAC), which advises on risk management, control, and governance frameworks, and an internal audit team that reports to the Superintendent.

This structure differs meaningfully from those of comparable domestic and international regulators. And there are reasons to ask whether its governance structure remains appropriate for today’s environment.

We start with the premise that, since 1987, governance practices, financial services, the risk environment, and OSFI’s mandate and activities have all evolved significantly. Yet the model underpinning OSFI’s structure (see Box 1) has not undergone a major review since the MacKay Task Force in 1998, nearly 30 years ago.

Historically, Canada’s financial system included five main groups: chartered banks, trust and loan companies, the co-operative credit movement, life insurance companies, and securities dealers. These pillars began to dissolve shortly after the formation of OSFI with the 1987 and 1992 revisions to the Bank Act, as large banks acquired trust and loan companies and securities dealers. Recently, some credit unions have become federally regulated.

Today, Canada’s financial sector faces a convergence of risks that challenge traditional prudential supervision and place new demands on regulatory governance. Beyond post-financial crisis concerns about capital adequacy and credit risk, the current landscape includes geopolitical tensions that could disrupt cross-border resolution and capital flows (Zelmer 2025), increasingly sophisticated cyber threats (including state-linked attacks [OSFI 2025]), and escalating physical and transition risks from climate change (IMF 2025a). While OSFI has strengthened its supervisory frameworks in areas such as cyber resilience and climate risk, these pressures highlight the importance of a governance structure capable of navigating complex trade-offs between stability, competitiveness, resilience, and public confidence.

OSFI’s responsibilities have also expanded. Since 2012, it has overseen the insurance activities of the Canada Mortgage and Housing Corporation (CMHC). In 2016, it introduced a mortgage stress test, increasing its direct impact on individual Canadians. More recently, the passage of Bill C-47 in 2023 requires OSFI to examine whether federally regulated financial institutions have adequate policies and procedures related to integrity and security.

Compared with its peers, OSFI’s governance model is unusual. Many comparable regulators operate with boards (OECD 2010). The OECD (2014) identifies several advantages of multi-member governing bodies: they are less susceptible to regulatory capture than a single decision-maker; they better balance judgment in complex, principles-based regulatory environments; and they provide collective support for strategic oversight. All three apply to OSFI. While its track record reflects strong leadership, distributing authority would reduce institutional vulnerability by design, rather than relying on any one individual. A multi-member body would also provide a structured forum for debating complex trade-offs and challenging internal decision-making as OSFI confronts emerging risks such as AI and cyber threats.

International counterparts following such practices include the UK’s Prudential Regulation Authority and Australia’s Prudential Regulation Authority. Domestically, newer regulators such as the Financial Services Regulatory Authority of Ontario (FSRA), along with securities regulators like the Ontario Securities Commission (OSC), have adopted board governance structures.

Given the evolving financial landscape, a shift from a single-head model to a multi-member structure is warranted. Regulating the financial system requires a balancing act that collective decision-making provides by offering a diversity of opinions, expertise, and perceptions. As OSFI’s activities expand into areas such as cybersecurity and financial institution governance, it also requires new subject-matter expertise to develop compliance and enforcement capabilities in new areas.

We therefore recommend that OSFI transition to a multi-member governance structure, including a board of directors and advisory councils. This would strengthen independence, enhance transparency and accountability, and align OSFI with best practices in regulatory governance.

OSFI’s governance model should also undergo periodic review – something that has not occurred since the MacKay Task Force nearly three decades ago (see Box 2). This absence has left the framework misaligned with international best practices. Conducting a formal review at least once every 10 years would ensure that the model remains current and fit for purpose in fulfilling OSFI’s mandate and Canadians’ expectations.

OSFI Expanded Responsibilities and Activities

Since the 2007-08 global financial crisis, OSFI’s mandate and responsibilities (Figure 2) have broadened significantly in response to rising systemic risks and a more complex financial landscape. As noted, OSFI oversees CMHC, particularly its commercial activities in the mortgage insurance sector – an area critical to housing market dynamics and, by extension, to household debt and consumption patterns.

OSFI has also taken a more proactive role in setting regulatory expectations. Since 2016, it has accelerated the issuance of guidelines on governance, capital adequacy, and insurance practices of federally regulated financial institutions (FRFIs). In some cases, these guidelines go beyond traditional supervisory functions and increasingly influence Canadians’ everyday financial experiences.

One prominent example is the Minimum Qualifying Rate (MQR) or “mortgage stress test” introduced by OSFI in 2018. It requires lenders to verify income and apply a minimum qualifying rate to uninsured mortgages. The stress test is designed to evaluate the solvency of mortgage holders under adverse interest rate conditions, reduce systemic risk in the housing market, and support sound financial management of financial institutions. While it strengthens system resilience, this approach may limit household credit availability and affect Canadians’ capacity to purchase homes.1

More recently, the passage of Bill C-47 by the federal government in 2023 further expanded OSFI’s authority. It allows OSFI to assess whether FRFIs have adequate integrity and security policies and procedures. This change reflects the shift toward a broader conception of financial stability. As a result, the Superintendent’s responsibilities have grown in both complexity and impact.

Although OSFI has developed the in-house expertise2 to manage its expanded functions, its evolving role would benefit from greater external input.3 Incorporating diverse perspectives would strengthen its ability to challenge prevailing internal perspectives and ensure that its regulatory approach remains well-informed, while anchored in its prudential mandate.

The Pros and Cons

Before making the case for transitioning OSFI to a multi-member model, it’s useful to set out the advantages and limits of each governance model. Regulators generally use three models. The first is a multi-member body that sets strategic direction and operational policy, while delegating regulatory decisions to a chief executive officer. The second is a commission model, also multi-member, in which a collective makes most substantive decisions. The third is a single-head model, where one individual holds primary decision-making authority.

The Organisation for Economic Co-operation and Development (OECD 2014) provides the established international framework for evaluating regulatory governance, including the choice between single-member and multi-member governance structures for independent regulators. It identifies when a multi-member governance model adds value, outlines the design considerations, and offers a framework for applying these factors to a specific regulator. Table 1 summarizes the main advantages and disadvantages of a multi-member body.

When a multi-member body adds value

The OECD (2014) identifies five factors in determining whether a multi-member governing body adds value.

  • Potential consequences of regulatory decisions: A collective is less susceptible to regulatory capture4 than an individual and benefits from a wider range of perspectives.
  • Need for diverse judgment: In complex or principles-based regulation, collective decision-making better balances judgment factors and minimizes the risks of varying judgments.
  • Degree of strategic guidance and oversight required: This is especially important when developing new regulations and deploying resources because a multi-member model provides the necessary collective support for strategic considerations.
  • Maintaining regulatory consistency over time: A group can better maintain consistency by providing “corporate memory” in decisions that rely heavily on judgment.
  • Decision-making independence: Boards are generally less susceptible to political or industry influence than a single decision-maker.5

What the single-head model offers that a multi-member model risks losing

By identifying when multi-member governance adds value, the OECD framework implicitly identifies the conditions under which a single-head model is better suited.

One of the clearest advantages of the single-head model is that responsibility is unambiguous. At OSFI, the Superintendent is directly accountable to the minister of finance, Parliament, and the public. Having a board does not automatically improve accountability. It can, if poorly designed, diffuse it.

The single-head model also enables faster, more decisive action. It avoids the delays of consensus-building and supports rapid responses to emerging risks or mandate changes. It can also minimize the risk of policy conflict that may arise when multiple board members hold divergent views.

These are not trivial considerations. As a microprudential regulator, OSFI must often respond rapidly to emerging risks and take swift decisions on a case-by-case basis. The ability to act without delay is valuable. A poorly designed multi-member body could slow responsiveness and introduce the kind of internal disagreement that undermines regulatory certainty. The OECD (2014) acknowledges this risk, noting that where a regulator has a high volume of time-sensitive decisions, the full governing body may need to delegate extensively.

The tension between models is genuine.

The OECD framework does not prescribe a single model but asks whether, on an honest assessment of the five criteria, the case for collective governance has been met. As the following sections argue, OSFI’s expanded mandate, the more complex risk environment, and the breadth of judgement now required shift that balance toward a multi-member model, provided the design risks are carefully managed.

The Evolving Risk Environment: A Case for Enhanced Governance

As this section demonstrates, Canada’s financial sector faces an unprecedented convergence of risks – geopolitical instability, cyber threats, climate change, and complex capital regulation trade-offs – that has expanded well beyond post-financial crisis concerns and fundamentally challenges traditional regulatory approaches. This shift raises the question of whether OSFI needs a new governance approach.

The answer is yes. As these risks grow in scope and complexity, OSFI’s governance structure should evolve accordingly. While the current model concentrates decision-making authority in a single Superintendent, a board could bring together experts in geopolitics, cybersecurity, climate science, international finance, and domestic economic policy to inform OSFI’s strategic direction. It would provide a forum for debating complex trade-offs, such as balancing financial stability with economic growth or weighing international regulatory coordination against domestic competitive concerns, in a more transparent and accountable manner. Most importantly, it would enhance OSFI’s legitimacy and public confidence in its decision-making during periods of intense scrutiny.

Geopolitical Risk and Cross-Border Vulnerabilities

Rising geopolitical tensions present fundamental challenges to Canada’s internationally active financial institutions. As Zelmer (2025) notes, weakening cross-border cooperation, particularly involving the United States, could make it harder to manage the recovery or orderly resolution of internationally active Canadian financial institutions during periods of distress. Foreign regulators may ring-fence assets within their jurisdictions, limiting Canadian authorities’ access to the capital and liquidity needed to protect domestic depositors and creditors. This risk is especially significant because Canada’s six major banks have substantial operations and exposures in the United States and other foreign markets.

These emerging and potentially politicized risks highlight the value of a board in providing independent, collective support for OSFI’s strategic direction.

Cyber Risk and Technological Threats

Cyber threats targeting financial institutions have increased in frequency and sophistication. In 2023, 26 percent of finance and insurance firms experienced cybersecurity incidents, compared with 16 percent across the private sector.6 Furthermore, the threat of cyberattacks remains high in Canada (IMF 2025b), and money laundering and fraud attempts from criminals and state-linked actors are becoming more advanced and difficult to detect (OSFI 2025). These activities will likely intensify with advances in AI and digitalization.

OSFI has acknowledged that foreign actors may target Canadian institutions for financial gains and geopolitical purposes (OSFI 2025). Repeated incidents in the financial sector could erode confidence and threaten its stability, causing spillovers to the rest of the economy.7

A 2025 IMF Financial Sector Assessment Program review of Canada found that while OSFI’s cyber risk supervisory framework is strong, gaps remained in coordination with federal and provincial authorities, and that OSFI’s integrated mandate enables it to detect advanced cyber threats beyond conventional risks (IMF 2025b). Given the complexity of these risks, a well-designed board with the right expertise could offer appropriate support in developing a strategic plan to mitigate these risks.

Climate Risks

Climate change presents both transition and physical risks to Canada’s financial system, with broader macroeconomic effects. It can reduce GDP (Dahlhaus 2025), increase inflation volatility (Duprey and Fernandes 2025), and negatively affect employment (Duprey et al. 2024). The 2016 Fort McMurray wildfire alone caused an estimated $9.9 billion in damages and reduced quarterly GDP by 0.4 percent (Statistics Canada 2024). These risks are expected to intensify, with projections indicating more frequent and severe weather conditions and longer wildfire seasons across much of Canada (IMF 2025a).

OSFI’s Guideline B-15 sets out expectations for FRFIs’ management of climate-related risks.8 However, the IMF’s recent assessment of climate risk in Canada’s financial sector recommends that OSFI strengthen its climate risk supervision through better data, coordination, and stress testing (IMF 2025a). A board with relevant expertise could help guide OSFI’s strategic response, while an advisory committee could support technical policy development in this area.

Domestic Regulatory Complexity: Basel III and Capital Requirements

Implementing Basel III reforms has created significant domestic challenges. In 2024-2025, OSFI faced intense public scrutiny over its approach to implementing the Basel III standardized capital floor (Zelmer 2024), with Superintendent Peter Routledge noting that the intensity of attention was new to OSFI and provided an opportunity to communicate more clearly to Canadians (OSFI 2024). The Superintendent noted that some observers argued that OSFI’s decision would have “a consequential and negative impact on economic growth, arguing that dramatically rising capital requirements
would slow lending and then economic growth” (OSFI 2024).

OSFI’s decision to indefinitely defer increases to the Basel III standardized capital floor level reflected concerns about competitive balance in the international banking system, as uncertainty remained about when other jurisdictions would fully implement Basel III.9 These are precisely the kinds of complex, multi-dimensional trade-offs that a board, equipped with expertise in international finance, economics, and competition policy, could be designed to support and challenge. A structured deliberative process within a governing board could provide a forum to assess these issues transparently and reduce perceptions of reactive or politically influenced decision-making.

The General Case for Multi-Member Governance at OSFI

The previous sections have shown that, across multiple dimensions of OSFI’s expanded mandate and activities, a multi-member governance structure could create net benefits over the current single-head model. This section shows how OSFI’s governance structure is out of step with comparable regulators domestically and internationally and draws lessons for reform.

International Comparison of the Governance Structures of Financial Institutions’ Regulatory Supervisors

We compare OSFI’s governance structure with the Australian Prudential Regulatory Authority (APRA), the UK’s Prudential Regulatory Authority (PRA), and Switzerland’s Financial Market Supervisory Authority (FINMA). All have similar mandates: they regulate financial institutions but are not responsible for promoting consumer protection.10

APRA uses a commission model that supports collective decision-making and incorporates a range of perspectives, thereby reducing dependence on any single leader. Its executive board of three to five government-appointed members, including the CEO as chair, manages operations and sets strategy. However, the responsibility for balancing immediate operational demands with long-term strategic priorities ultimately remains concentrated in a single authority. A clearer separation of these roles might yield a more effective balance. Consequently, this governance approach remains vulnerable to some of the same challenges faced by the single-head model. Furthermore, a lack of external views may hinder strategic decisions, given that the members are all employees and thus not independent of APRA.

Switzerland’s FINMA represents a cleaner governance board model and is widely seen as best practice (OECD 2014). An independent board of seven to nine expert members from academia and industry sets the strategic oversight and long-term planning, and oversees an executive team led by a CEO. No FINMA employees or ministry of finance officials sit on the board, ensuring independence. Its architecture creates a clear distinction between strategic and operational management. The board enhances the executive team’s accountability, and its composition strikes the right balance of multidisciplinary expertise between market practitioners and academics. Bringing expertise from law, finance, economics, and insurance helps align long-term strategy with evolving risks. However, safeguards are needed to prevent decision-making delays and mitigate potential biases.11

The PRA in the UK functions uniquely as part of the country’s central bank, and the Bank of England (BoE) employs the PRA staff. As a microprudential regulator, the PRA focuses on ensuring individual financial institutions are well capitalized and avoid excessive risk-taking, but through the lens of the effects those firms can have on system stability.12

Its structure is similar to the APRA’s in that it’s also governed by a commission, the Prudential Regulation Committee (PRC). At least six external expert members appointed by the government sit on the PRC, which makes it more independent.13 External members bring both market experience and academic insight, balancing practical relevance with historical and policy context. However, the presence of the BoE Governor on the board of both institutions, though a deliberate institutional choice given the PRA’s mandate orientation toward the systemic effects of firm-level risk, may raise questions about accountability and the separation of firm-level and system-level considerations in a crisis.

While OSFI’s single-head governance model offers advantages, experience across comparable jurisdictions reinforces the view that a multi-member governance structure is the most adequate for financial sector regulators. Diverse expertise and collective judgment improve decision-making and help regulators meet increasingly complex mandates. Given OSFI’s similar responsibilities, industry context, and evolving risk environment, these international experiences offer practical lessons for transitioning to a multi-member structure.

The Evolution of Provincial Financial Regulators

Recent Canadian reforms also support this shift. In 2022, the Ontario government revised the governance structure of the OSC (see Figure 3)14 to embrace evolving governance best practices as recommended by the Ontario Capital Markets Modernization Taskforce. The Taskforce determined that the OSC’s previous single-headed leadership structure hindered strategic oversight and operational execution, thereby limiting the organization’s overall effectiveness. It separated the Chair and CEO roles and established a board of directors (Capital Markets Modernization Taskforce 2021). Under this new model, the CEO oversees day-to-day regulatory operations, while the board sets strategic direction and governance.

Prior to that, Ontario adopted modern governance standards when it created FSRA in 2019, replacing FSCO and DICO with an agency led by an independent board and a separate CEO responsible for day-to-day management (FSRA 2025). The board sets strategic direction, oversees governance, and monitors the regulator’s performance against its mandate. The Chair of the Board serves as the primary liaison with the responsible ministry. The board has 12 members (up to 11 independent permitted plus the CEO), all with financial sector experience.15

The Canada Deposit Insurance Corporation as Institutional Comparator

The case for external board governance at OSFI is not limited to international and provincial precedents. The Canada Deposit Insurance Corporation (CDIC), which is part of Canada’s federal financial safety net, has a similar institutional structure.

CDIC operates with a board of directors, handles institution-specific supervisory data of comparable sensitivity to OSFI’s, and carries a mandate – deposit insurance, financial system stability, and resolution authority – that is functionally interdependent with OSFI’s prudential supervision role.

CDIC’s board comprises 12 members: six ex officio public sector directors drawn from the Department of Finance, the Bank of Canada, OSFI, and FCAC; and six private sector directors appointed by the Governor in Council for terms of up to four years. The CDIC Act16 bars current federal public servants, members of Parliament, and anyone affiliated with a federal or provincial financial institution from sitting on the board as private sector director. This exclusion addresses conflicts of interest while preserving access to relevant expertise. This demonstrates that statutory design can resolve the tension between independence and sectoral knowledge without foreclosing either.

The board’s mandate extends beyond administrative oversight to include strategic direction and decision-making authority over interventions in member institutions. These decisions are sensitive and time-critical, and often cited as incompatible with OSFI’s operating environment. CDIC’s experience suggests otherwise: a board can exercise strategic authority without displacing management.

Confidentiality concerns are also manageable. CDIC’s board routinely handles granular information on member institutions, subject to the conflict-of-interest rules and confidentiality obligations set out in the CDIC Act and the FAA. The practical management of confidential supervisory information within a board governance structure can be an established operating condition. There is no clear reason why similar arrangements could not function at OSFI, which is subject to comparable statutory confidentiality provisions and operates within the same inter-agency information-sharing framework.

The Office of the Auditor General of Canada has validated this model,17 finding CDIC’s governance sound and its board effective. This is further evidence that board governance of a federal financial body operating in a confidential supervisory environment is institutionally sustainable and withstands rigorous independent scrutiny over time.

In addition, the OSFI Superintendent already sits on CDIC’s board as an ex officio member, participating in board governance. The Superintendent is therefore already a participant in board-level governance of a federal financial institution operating under the same confidentiality constraints.

Taken together, the CDIC model helps in making the case for an OSFI board and shows that confidentiality constraints don’t render external governance impractical and need not compromise operational independence. The relevant question for reform is not feasibility, but how to define the boundary between board oversight and the Superintendent’s authority to preserve supervisory independence. We turn to that question next.

OSFI’s Next Review

The preceding sections have shown that board governance can coexist with operational independence across a range of international and domestic institutional comparators. The next question relates to design – how to structure such a board and allocate authority among the board, the Superintendent, and the minister.

OSFI’s mandate and governance structure have not been reviewed since 1998. This lack of periodic reviews is itself a structural gap. Comparable financial regulators in Canada and abroad undergo regular assessments of their mandate, governance, and accountability. OSFI has not. A review is warranted not because of weak performance, but because its governance framework has not been evaluated against current institutional standards, peers, or international norms in nearly 30 years.

A review focused on board governance should address, at minimum:

  • What public policy outcomes should OSFI deliver?
  • What operational, legislative, or regulatory changes would improve its effectiveness in the face of changing market realities?
  • Would a new governance model strengthen or weaken political oversight needed to keep legislation and enforcement up to date?
  • How would alternative governance structures affect the risk of stakeholder regulatory capture?
  • How can governance design account for Canada’s unique federal/provincial division of financial sector regulatory responsibilities and ensure desired regulatory outcomes can be effectively achieved?
  • How should statute define the boundary between board strategic oversight and the Superintendent’s authority?
  • What appointment criteria and processes would ensure board independence without limiting access to relevant financial sector expertise?
  • How should the board be accountable to Parliament, and how would this differ from the Superintendent’s reporting obligations?
  • What, if any, role should the board play in the use of macroprudential tools such as the Domestic Stability Buffer?
  • How should the accountability relationship between the Superintendent and the minister of finance be preserved or clarified in the context of a multi-member governance structure?

The next section addresses some of these questions and sets out a proposed governance architecture that draws on the institutional comparators examined and the design lessons from the MacKay Taskforce.

A Roadmap to Improve OSFI’s Governance

We now turn to how OSFI can improve its governance structure by incorporating diverse perspectives and enhancing its credibility with stakeholders. Effective governance frameworks for government agencies must safeguard against undue political or industry influence.

While OSFI maintains a professional relationship with regulated institutions, there is no evidence of regulatory capture within the Canadian financial system (IMF 2014). Nonetheless, a board structure could further strengthen OSFI’s independence by reducing vulnerability to such influence. Collective governance bodies are less susceptible to capture than individual decision-makers and can enhance institutional credibility (OECD 2014; Jabotinsky and Siems 2017). This is not to suggest that any Superintendent has been susceptible to such influence. Rather, distributed authority and diverse membership provide a durable safeguard that does not depend on any one individual.

Given OSFI’s expanding mandate and activities, the board could provide strategic oversight and support, while reinforcing institutional memory and consistency. It would allow the Superintendent to focus more on day-to-day operations while contributing to long-term strategy.

To achieve this, we recommend two changes: an independent board of directors to provide strategic oversight and expertise; and advisory councils to supplement OSFI’s knowledge in emerging risk domains such as cybersecurity and artificial intelligence.

1. Board of Directors

The board would:

  • Approve strategic direction, policies, culture, and risk appetite, and provide independent advice to the Superintendent.
  • Be accountable to Parliament and subject to its oversight and scrutiny.
  • Periodically review OSFI’s policy effectiveness (e.g., the MQR stress test or the Domestic Stability Buffer).
  • Approve the budget, review OSFI’s Annual Risk Outlook, and provide a challenge function.
  • The board would not:
  • Review institution-specific supervisory decisions, preserving confidentiality.18
  • Manage OSFI’s operations.
  • Execute decisions on prudential tools such as the MQR or the Domestic Stability Buffer.

Structure of the Board

To provide OSFI with diversity of expertise and perspective, the board of directors should:

  • Exclude members from FISC and regulated industries to maintain independence.19
  • Draw members from academia, former regulators (including those from other jurisdictions), risk specialists, and former industry practitioners.20
  • Include an independent chair and five to nine members with multidisciplinary expertise. The Superintendent should serve as a member, and a government representative (e.g., deputy minister of finance) could serve ex officio.21
  • Use three-year renewable terms with staggered appointments to ensure continuity.22

This structure differs fundamentally from the existing DAC. The DAC is an advisory body within OSFI that provides independent advice and recommendations to the Superintendent on risk management, internal controls, and governance frameworks. The DAC is composed of a majority of external members drawn from outside the federal public administration, with relevant experience in private and public sector financial reporting. Members are selected by the Superintendent and approved by the Treasury Board. At least one member must hold a professional accounting designation. The Superintendent sits as an ex officio member.

The proposed board of directors differs from the DAC in many respects (Table 2). Where the DAC looks backward to verify that established processes were followed, the board looks forward to challenge whether OSFI is pursuing the right strategic priorities. Where the DAC reports to the Superintendent, the board exercises independent oversight over the Superintendent. And where the DAC has no parliamentary accountability function, the board would serve as a formal mechanism linking OSFI’s governance to parliamentary scrutiny, which is a function that currently does not exist.

The distinction is substantive, not incremental: the DAC strengthens process integrity, while the board would strengthen the legitimacy of OSFI’s direction. Both are necessary, but one cannot substitute for the other.

2. Advisory Committees

Financial regulators commonly use advisory committees to access industry expertise and incorporate market perspectives into policymaking. For example, the OSC is supported by seven distinct third-party advisory committees to provide input on new policies, assess regulatory impacts, and communicate stakeholder concerns.23 These committees focus on specific technical or sectoral topics and provide advice to staff, drawing on both market participants and regulators.

Internationally, the UK’s PRA uses the Practitioner Panel to represent the interests of industry practitioners to fulfill a statutory duty. This independent panel provides expert input on the PRA’s policies and constructive challenge and advice to ensure that practitioner perspectives are reflected in regulatory decision-making. It meets about six times a year with PRA leadership and has contributed feedback on a range of policy issues, including the implementation of Basel 3.1.

While it is true that financial services regulators already incorporate the views of market participants and stakeholders into their regulatory rules through public consultations, they control these processes by setting the agenda and framing the questions. This approach is episodic and tied to specific rule-making initiatives.

Advisory committees would:

  • Provide OSFI with a diversity of expertise and perspectives on risk-related issues, particularly in emerging areas where in-house capacity may be limited (e.g., cybersecurity).24
  • Challenge OSFI’s policy responses on issues such as technology, security, and integrity risks.

Transparency around such bodies would contribute to the credibility of OSFI’s policy responses. Publishing the membership of each group and any recommendations that the body may provide to OSFI would further enhance credibility.

Advisory committees would not:

  • Engage in federally regulated financial institution work, preserving confidentiality.25
  • Manage OSFI’s operations, including staffing, budgeting, and internal structure.
  • Review OSFI decisions and actions for specific institutions.
  • Participate in OSFI-specific decisions regarding systemic prudential tools such as the MQR or the Domestic Stability Buffer.

Structure of the Advisory Committees

Advisory committees should:

  • Be independent.
  • Include members from academia, regulatory bodies (including other jurisdictions), risk specialists, and selected industry practitioners.26
  • Have an independent chair and at least five expert members with multidisciplinary backgrounds.
  • Be reviewed periodically to ensure expertise remains aligned with emerging risks, informed by sources such as OSFI’s Annual Risk Outlook and the IMF’s Global Financial Stability Report.
  • Be time-limited where appropriate (e.g., three-year terms or until a specific policy issue is addressed), reflecting their specific topic of focus.27

While an independent board and advisory committees will minimize the risk of industry influence through normal course operations, it would not, on its own, address the issue of accountability.

Since OSFI derives its authority from Parliament, we recommend that Parliament play an active role in overseeing OSFI. One option would be to legally require OSFI to regularly appear before the House of Commons Standing Committee on Finance (FINA) and the Senate Standing Committee on Banking, Commerce, and the Economy (BANC). To our knowledge, the Superintendent last appeared before BANC in October 2025 and before FINA in 2024.

Regular appearances have proven effective for other institutions, such as the Bank of Canada, by strengthening transparency without compromising independence or responsiveness to emerging risks. Although not legally required to do so, the Bank of Canada appears before Parliament at least twice a year (Binette and Tchebotarev 2019). In 2024, the Standing Senate Committee on Banking, Commerce, and the Economy released a report on the conduct of monetary policy in Canada, in which it recommended formalizing this practice to strengthen accountability and transparency (Senate 2024).

In addition to stronger governance and parliamentary oversight, OSFI would benefit from a structured periodic review of its governance framework, similar to the IMF’s Financial Sector Assessment Program but focused on the regulator itself. In its nearly four decades of existence, the MacKay Task Force has been the only review of OSFI’s governance, and that was nearly 30 years ago. Establishing a formal review cycle, at least once every decade, would ensure that OSFI’s governance remains current, aligned with international best practices, and capable of supporting an increasingly complex financial sector.

Conclusion

The OSFI Act states that its purpose “…is to ensure that financial institutions and pension plans are regulated by an office of the Government of Canada so as to contribute to public confidence in the Canadian financial system.” Since its creation in 1987, OSFI has played an important role in upholding that confidence. Yet the environment in which Canadian financial institutions operate has changed dramatically and continues to evolve due to forces such as digitalization, artificial intelligence, climate-related risks, and geopolitical uncertainty.

Modernizing OSFI’s governance is both timely and necessary. We recommend moving from a single-head model to a multi-member structure, including a board of directors and advisory councils, to broaden the perspectives informing policy decisions. Further, enhancing transparency and accountability through regular appearances before Parliament would reinforce OSFI’s contribution to public confidence in the financial system.

OSFI should also adopt a formal review cycle (at least once every 10 years) to ensure its governance remains aligned with best practices and responsive to emerging risks. Publishing regular updates, conducting consultations, and providing plain-language summaries of board decisions and advisory committee recommendations would further enhance transparency.

Together, these reforms will help OSFI remain a credible and adaptive regulator.

The authors extend gratitude to Hande Bilhan, Glen Hodgson, Phil Howell, Jeremy Kronick, Victoria Mainprize, Peter MacKenzie, Parisa Mahboubi, and several anonymous referees for valuable comments and suggestions.

Jamey Hubbs currently serves on the board of Laurentian Bank. The authors retain responsibility for any errors, and the views expressed in this paper do not reflect those of their past or current affiliations.

For the Silo, Mawakina Bafale and Jamey Hubbs/C.D. Howe Institute.

REFERENCES

Binette, André, and Dmitri Tchebotarev. 2019. “Canada’s Monetary Policy Report: If Text Could Speak, What Would It Say?” Staff Analytical Note/Note analytique du personnel 2019-5. Bank of Canada.

Bourque, Paul C., and Gherardo Gennaro Caracciolo. 2024. The Good, the Bad and the Unnecessary: A Scorecard for Financial Regulations in Canada. Commentary 664. Toronto: C.D. Howe Institute. July. https://cdhowe.org/publication/good-bad-and-unnecessary-scorecard-financial-regulations-canada/.

Capital Markets Modernization Taskforce. 2021. Capital Markets Modernization Taskforce Final Report. https://files.ontario.ca/books/mof-capital-markets-modernization-taskforce-final-report-en-2021-01-22-v2.pdf.

Caracciolo, Gherardo Gennaro. 2025. Pruning the Rulebook: Canada’s Financial Regulatory Scorecard, Year Two. Commentary 694. Toronto. C.D. Howe Institute. October. https://cdhowe.org/publication/pruning-the-rulebook-canadas-financial-regulatory-scorecard-year-two/.

Dahlhaus, T., T. Duprey, and C. Johnston. 2025. “Estimating the impacts on GDP of natural disasters in Canada.” Staff Analytical Note 2025-5. Bank of Canada.

Duprey, T. and V. Fernandes. 2025. “Natural disasters and inflation in Canada.” Staff Analytical Note 2025-8. Bank of Canada.

Duprey, T., S. Jo, and G. Vallée. 2024. “Let’s get physical: Impacts of climate change physical risks on provincial employment.” Staff Working Paper 2024-32. Bank of Canada.

Edwards, Gary. 2025. Regulatory Reset: A Policy Roadmap for Expanding Financial Advice to Middle- and Lower-Income Canadians. Commentary 693. Toronto: C.D. Howe Institute. https://cdhowe.org/publication/regulatory-reset-a-policy-roadmap-for-expanding-financial-advice-to-middle-and-lower-income-canadians/.

Financial Services Regulatory Authority of Ontario. N.d. “Memorandum of Understanding.” https://www.fsrao.ca/about-fsra/governance#:~:text=The%20Memorandum%20of%20Understanding%20(MOU,Directors%20(BOD)%20and%20Chair.

Hartley, Jonathan, and Paixão Nuno. 2024. “Mortgage stress tests and household financial resilience under monetary policy tightening.” Staff Analytical Note 2024-25. Bank of Canada. November.

House of Commons. 1998. The Future Starts Now. A study of the Financial Services Sector in Canada. Committee Report No. 12, 36th Parliament, 1st Session. https://www.ourcommons.ca/DocumentViewer/en/36-1/FINA/report-12/.

International Monetary Fund. 2025a. “Canada: Financial Sector Assessment Program—Technical Note on Climate Risks Analysis.” IMF Staff Country Reports 2025/234. https://doi.org/10.5089/9798229021920.002.

______________. 2025b. “Canada: Financial Sector Assessment Program—Technical Note on Cyber Resilience of the Financial Sector.” IMF Staff Country Reports 2025/231. https://doi.org/10.5089/9798229021586.002.

______________. 2022. “United Kingdom: Financial Sector Assessment Program — Technical Note on Banking Supervision and Issues in Financial Stability.” IMF Country Reports 2022/105. https://www.imf.org/-/media/files/publications/cr/2022/english/1gbrea2022006.pdf.

______________. 2019. “Australia: Financial System Stability Assessment.” IMF Country Reports 2019/054. https://www.imf.org/en/publications/cr/issues/2019/02/13/australia-financial-system-stability-assessment-46611

Jabotinsky, Hadar Yoana, and Mathias Siems. 2017. “How to Regulate the Regulators: Applying Principles of Good Corporate Governance to Financial Regulatory Institutions.” European Corporate Governance Institute (ECGI) Law Working Paper No. 354/2017. http://dx.doi.org/10.2139/ssrn.2978112.

Office of the Superintendent of Financial Institutions. 2024. “OSFI, Basel III, and Capital Floors.” October 2. https://www.osfi-bsif.gc.ca/en/news/osfi-basel-iii-capital-floors.

______________. 2024. “The OSFI Story.” https://www.osfi-bsif.gc.ca/en/about-osfi/osfi-story.

______________. 2025. OSFI’s Annual Risk Outlook – Fiscal Year 2025-2026. https://www.osfi-bsif.gc.ca/en/print/pdf/node/2625.

Ontario Securities Commission. 2022. “New governance structure takes effect at OSC.” https://www.osc.ca/en/news-events/news/new-governance-structure-takes-effect-osc.

______________. N.d. “Advisory Committees.” https://www.osc.ca/en/about-us/role-osc/advisory-committees.

Organisation for Economic Co-operation and Development. 2010. Making Reform Happen: Lessons from OECD Countries. Paris: OECD Publishing. https://www.oecd.org/en/publications/making-reform-happen_9789264086296-en.html.

______________. 2014. The Governance of Regulators. Paris: OECD Publishing. https://doi.org/10.1787/9789264209015-en.

Privy Council Office. 1999. Guide Book for Heads of Agencies: Operations, Structures and Responsibilities in the Federal Government. Ottawa: Government of Canada. https://www.canada.ca/content/dam/pco-bcp/documents/pdfs/guide-1999-eng.pdf.

Rogers, Carolyn. 2025. “Prosperity through Productivity.” Speech. Bank of Canada. October 9. https://www.bankofcanada.ca/2025/10/prosperity-through-productivity/.

Senate of Canada, Standing Senate Committee on Banking, Commerce and the Economy. 2024. Study on Canada’s Monetary Policy Framework – Interim Findings. Interim report. December. https://sencanada.ca/content/sen/committee/441/BANC/reports/BANC_SS-2_InterimReport_Final_e.pdf

Statistics Canada. 2017. “Fort McMurray 2016 Wildfire: Economic Impact.” Catalogue no. 11-627-M2017007. https://www150.statcan.gc.ca/n1/en/pub/11-627-m/11-627-m2017007-eng.pdf?st=TnD0z4KR.

Task Force on the Future of the Canadian Financial Services Sector. 1998. Change, Challenge, Opportunity: Report of the Task Force on the Future of the Canadian Financial Services Sector. Department of Finance Canada. https://publications.gc.ca/collections/collection_2021/fin/BT22-61-1998-eng.pdf.

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Zelmer, Mark. 2024. “Let’s Not Rush New Bank Rules on Capital and Lending.” Intelligence Memos. Toronto: C.D. Howe Institute. https://cdhowe.org/publication/mark-zelmer-lets-not-rush-new-bank-rules-capital-and-lending/.

______________. 2025. Home Advantage: Helping Financial Institutions Prepare for Financial Distress Amidst Rising Geopolitical Tensions. Commentary 692. Toronto: C.D. Howe Institute. https://cdhowe.org/publication/home-advantage-helping-financial-institutions-prepare-for-financial-distress-amidst-rising-geopolitical-tensions/.

Finance

Canada’s Financial Rules May Be Holding Growth Back

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  • In the second year of our regulatory scorecard paper, results continue to show the need for a more balanced approach to financial oversight, one that explicitly incorporates innovation and competition alongside traditional stability and consumer protection goals.
  • Newly issued and updated regulatory documents did not change previous results.
  • The imbalance reflects the mandates of Canadian regulators, which stand in contrast to those of their UK, Australian, and US peers, where innovation and competition are more explicitly recognized.
  • The study highlights deficiencies in the implementation and communication of cost-benefit analyses. Compliance costs are increasingly embedded across most of the financial sector workforce, with the share of labour costs and revenues devoted to compliance rising steadily, significantly exceeding international counterparts, and falling disproportionately on smaller firms.
  • If left unaddressed, these asymmetric and rising compliance costs risk diverting skilled labour and capital away from core business functions, undermining productivity, innovation, and the overall competitiveness of Canada’s financial sector.
  • Modernizing the mandates of Canadian regulators to explicitly recognize the tradeoffs between stability, investor protection, and economic dynamism is an economic imperative.

1. Introduction

Canada continues to face a well-documented struggle with weak productivity growth, poor business investment, and sluggish economic expansion.1 There is also a quantifiable link in Canada between growing regulatory burdens, including financial sector regulation and weaker growth.2 The challenge, therefore, is not whether to regulate, but how: regulators must find a balance between safeguarding financial stability and enabling economic dynamism. Achieving such a balance could be especially consequential in Canada, where both growth and competitiveness remain fragile.

Against this backdrop, a crucial question is whether Canadian financial regulators operate within a sound and structured framework that ensures the implementation of truly necessary rules and regulations. To provide an answer, this paper builds on the work of Bourque and Caracciolo (2024)3 which employed two complementary types of analysis – one theoretical, one empirical – to shed light on the strengths and the weaknesses of Canada’s regulatory landscape.

The theoretical analysis established the foundation for evaluating regulatory effectiveness by defining the core principles that should guide financial regulators in building a sound and efficient regulatory framework.4 It identified three essential steps that should underpin any regulation-making process: (1) thoroughly identifying the problem; (2) conducting a comprehensive cost-benefit analysis to weigh the implications of potential regulations; and (3) clearly articulating objectives to ensure predictability and consistency.

The empirical analysis involved a two-stage quantitative and qualitative textual analysis. The first stage consisted of an international comparison, where the performance of Canada’s primary federal financial regulator – the Office of the Superintendent of Financial Institutions (OSFI) – was benchmarked against two international counterparts: the United Kingdom’s Prudential Regulation Authority (PRA) and the Australian Prudential Regulation Authority (APRA). This comparative analysis helped contextualize OSFI’s regulatory approach in relation to best practices observed in other financially comparable jurisdictions.

The second stage dug deeper into the Canadian financial regulatory landscape, evaluating the regulations of the main federal and provincial bodies against the principles identified in the theoretical framework. To do this, Bourque and Caracciolo (2024) developed a comprehensive scorecard that assessed core regulatory documents to determine the extent to which Canadian regulators adhered to these principles.

The findings showed that although Canadian regulators have generally succeeded in crafting well-structured regulations, their approach often falls short of adhering – on aggregate – to the core principles outlined in the framework. This leads to a lack of predictability and a more reactive, rather than proactive, set of rules and regulations. In this environment, rules are introduced in response to emerging challenges rather than through proactive, forward-looking planning. Further, there is a notable lack of systematic and substantive use of cost-benefit analysis, both in the development of regulations and in communicating their expected impact.

The scorecard allowed for an investigation into the priorities of Canadian regulators. Most of the current regulations in Canada place financial stability and consumer protection as their primary goals. These are, of course, both crucial objectives; however, they are too often pursued without adequate consideration of their interplay with innovation and competition. As a result, regulatory frameworks may end up stifling growth, particularly among smaller firms that lack the resources to absorb compliance costs as easily as larger institutions.

Building on last year’s study, this paper has three principal objectives. First, it updates the regulatory scorecard. An annual update makes it possible to track how Canadian regulatory priorities evolve over time and assess whether any progress is being made in addressing the shortcomings identified earlier. Notably, this updated scorecard reveals that the fundamental orientation of Canadian financial regulation remains largely unchanged: stability and consumer protection continue to dominate (if anything, with a slight uptick), while considerations of dynamism, innovation, and competition remain on the back burner. To be sure, some rebalancing is emerging. Ad hoc initiatives – such as blanket orders, sandbox activities, and similar discretionary measures – have introduced some pockets of innovation and efforts to reduce administrative burden. Nevertheless, our main point persists: without a deeper shift in regulatory philosophy, such measures risk remaining isolated exceptions, rather than indicative of a broader shift.

To probe the core of Canadian regulators’ philosophy – and to test whether the observed regulatory imbalance is structural – the analysis is extended to include foundational documents that set out regulators’ objectives, mandates, and missions.5 Examining these texts allows for an assessment as to whether the current priorities are rooted in the very design and self-perception of regulatory institutions, rather than from recent or temporary policy choices. The results show a clear hierarchy of objectives in regulator mandates across the country, with stability and consumer protection firmly dominant. This stands in contrast to the mandates of regulators in the UK, Australia, and the US, where innovation and competition feature more prominently. Without a shift toward a more balanced regulatory philosophy, Canada risks falling further behind in competitiveness, innovation-driven growth, and overall economic resilience.

One consequence of this regulatory imbalance is the potential for disproportionate compliance costs – relative to benefits – being imposed on the financial sector. Hence, the third goal of the paper is to evaluate the cost side of cost-benefit analysis in regulatory decision-making. We do this by quantifying and identifying compliance costs imposed by financial regulations across different financial subsectors, with particular attention to varying firm sizes. By empirically assessing these costs, this study fills a critical gap in the literature, offering concrete evidence of how current regulatory frameworks affect businesses, especially smaller firms that may face a heavier burden. Our aim is to start a new, thorough, and reliable database that will create valuable insights for policymakers and regulators.

The first wave of results is concerning.

Although the benefits of regulation are difficult to measure, compliance duties are becoming increasingly embedded across most of the financial sector workforce. The share of labour and revenues devoted to compliance continues to rise – well above international counterparts – and the burden falls disproportionately on smaller firms. If left unaddressed, these asymmetric and rising compliance costs risk diverting skilled labour and capital away from core business functions, further undermining productivity, innovation, and the overall competitiveness of Canada’s financial sector.

2. The Updated Scorecard

2.1 Methodology

To update the regulatory scorecard, we employ the same textual and topic analysis framework as in the previous study (Bourque and Caracciolo 2024), applying it to newly issued and updated regulatory documents from the past year (June 2024 to June 2025) alongside previous documents. Our focus remains on key regulatory materials across the banking, insurance, pensions, and securities sectors, including Financial Services Regulatory Authority of Ontario (FSRA) Guidelines, Autorité des marchés financiers (AMF) Guidelines, Office of the Superintendent of Financial Institutions’ (OSFI) Guideline Impact Analysis (and related documents), and Canadian Securities Administrators’ (CSA) Companion Policies.6

Using natural language processing (NLP) techniques (see Bourque and Caracciolo [2024] for a more complete description), we extract and classify key terms, sentences, and logical arguments to assess how these documents address market failures (e.g., market abuse, asymmetric information, systemic and liquidity risk), policy objectives (e.g., stability, transparency, efficiency), and cost-benefit considerations.7 This allows us to evaluate the extent to which Canadian regulators align with the core principles of sound regulatory decision-making: problem identification, cost-benefit assessment, and clear articulation of objectives.

While the core methodology remains unchanged, this iteration refines our classification process.8 We will perform this update on an annual basis, allowing us to systematically track shifts in regulatory priorities over time. The full updated scorecard, which reflects these refinements and new findings, is presented in online Appendix C (Table 1).

2.2 Results

This updated regulatory scorecard reveals similar results as last year in Canadian financial regulation: the fundamental priorities of regulatory authorities have remained largely unchanged, with consumer protection, transparency, and stability dominating the regulatory agenda. Despite ongoing discussions about the need to stimulate economic growth in Canada, our analysis indicates that a more balanced approach to financial oversight, one that explicitly incorporates innovation and competition alongside these traditional goals, remains largely absent from newly issued and updated regulatory documents (evaluated alongside existing documents).

Most regulatory initiatives (approximately 92 percent versus 89 percent of last year) primarily target market abuse, stability, transparency, and, ultimately, improved consumer protection. On the other hand, a smaller fraction (around 14 percent, compared to 16 percent last year) explicitly aim to enhance efficiency, promote growth and innovation, and take into account the stability versus dynamism trade-off that is a critical part of any regulatory structure.

One notable exception among the newly analyzed documents is delivered by FSRA’s Guideline GR0014APP, which demonstrates a departure from the prevailing regulatory narrative. This document explicitly acknowledges the importance of fostering a more dynamic financial marketplace, introducing measures aimed at reducing barriers to entry and enhancing the competitive landscape.9 We also acknowledge that CSA’s National Instrument 81-101 Mutual Fund Prospectus Disclosure, which focuses on enhancing transparency and investor protection through standardized disclosure requirements, aims to simplify the disclosure procedure and, therefore, represents an important step forward in regulatory efficiency.

Beyond these individual measures, we note that FSRA and CSA have also set out broader ambitions. FSRA’s 2024–2027 Strategic Plan highlights burden reduction and regulatory efficiency, while CSA’s 2025–2028 Business Plan emphasizes internationally competitive markets and regulatory approaches that adapt to innovation and technological change. These commitments are commendable and encouraging, but they remain largely aspirational: they signal intent, but the challenge is whether they will translate into consistent features of day-to-day regulatory instruments. Our annual updated scorecard will be able to monitor this.

Breaking down our analysis to the single regulator level, FSRA stands out as the one that has gone furthest in bridging the gap between intentions and actions: around 17 percent of its analyzed documents now contain growth or innovation considerations (up from 13 percent last year). By contrast, CSA – which admittedly had the highest percentage last year – OSFI, and AMF remain closer to their prior levels, with innovation-oriented content in only 18 percent, 10 percent, and 10 percent of their documents, respectively. For now, the broader regulatory environment continues to disproportionately prioritize risk mitigation and consumer safeguards over fostering a more adaptive and competitive financial sector.

Moreover, and again consistent with last year, there is a dearth of explicit cost-benefit analysis or meaningful discussion of the broader economic costs imposed by the regulatory interventions across nearly all examined documents.10

3. Where Does This Imbalance Come From?

Our scorecard raises a fundamental question: is this imbalance an unintentional result, or does it reflect the regulators’ mandate and therefore a structural feature of Canada’s regulatory landscape? To answer this, we examined the mandates and missions of Canadian financial regulators (prudential and securities regulators alike). For the vast majority, dynamism, competition, and capital formation are typically only included following the mission statements – OSC being a notable exception. The primary focus of the mission statements remains on stability, investor protection, and market integrity, which are vital but fall short of capturing the full potential of a dynamic, innovative financial sector.

For example, OSFI’s mandate is to:

  • “ensure federally regulated financial institutions (FRFIs) and federally regulated pension plans (FRPPs) remain in sound financial condition;
  • ensure FRFIs protect themselves against threats to their integrity and security, including foreign interference;
  • act early when issues arise and require FRFIs and FRPPs to take necessary corrective measures without delay;
  • monitor and evaluate risks and promote sound risk management by FRFIs and FRPPs.”11

It is only after that that they say, “In exercising our mandate:

  • for FRFIs, we strive to protect the rights and interests of depositors, policyholders and financial institution creditors while having due regard for the need to allow FRFIs to compete effectively and take reasonable risks.”

To further substantiate this point, we look to see whether the secondary status of competition, cost, and innovation in Canadian regulators’ mandates is a uniquely Canadian phenomenon or part of a broader international pattern. Benchmarking against international best practices is particularly relevant in financial regulation, where peer jurisdictions face similar market dynamics and policy tradeoffs. By comparing Canada’s regulatory mandates to those of similar international counterparts, we can better assess whether the Canadian approach reflects a deliberate policy choice or a missed opportunity to align with evolving global standards.

As in the scorecard, we conducted a systematic textual analysis of the mandates and missions of major financial regulators in Canada, the UK,12 Australia,13 and the United States.14 Using natural language processing techniques, we extracted and quantified the most prominent themes and keywords in these foundational documents.15 The results are visually summarized in the accompanying wordclouds. The size of each word reflects its frequency and “keyness” – a measure of statistical importance and relevance within the analyzed texts. Unlike simple term frequency, this approach highlights the concepts and priorities regulators emphasize disproportionately relative to the overall corpus, providing a more nuanced quantitative assessment. The wordclouds thus offer an intuitive visual snapshot of the dominant regulatory themes.

What emerges from this analysis is a clear divergence in regulatory philosophy. The wordclouds for the UK and Australia show that terms such as “competition,” “growth,” and “cost” are extremely relevant in the language of their regulators’ mandates. This reflects an explicit and deliberate embedding of economic dynamism and efficiency into their regulatory objectives.

Indeed, the UK’s PRA and Australia’s APRA, while maintaining stability and consumer protection as core priorities, have made efforts to explicitly incorporate competition, innovation, and market adaptability into their mandates over the past decade (Figure 1). The PRA, for example, makes the case that long-term resilience requires a financial sector that is not only stable but also competitive, forward-looking, dynamic, and innovative. By integrating efficiency and market innovation, the PRA looks to ensure that the financial ecosystem can grow and evolve with emerging market demands.

Similarly, APRA’s mandate balances the primary objective of safety “with considerations of competition, efficiency, contestability (making barriers to entry high enough to protect consumers but not so high that they unnecessarily hinder competition) and competitive neutrality (ensuring that private and public sector businesses compete on a level playing field).”16

In contrast, the wordclouds for Canadian deposit-taking and insurance regulators reveal a notable absence of such language (see Figure 2 for OSFI, FSRA17, and AMF18). Their mandates and mission, while perhaps containing references to competition and growth, are dominated by terms like “stability,” “solvency,” “obligation,” and “consumer protection.”

This linguistic gap is not just cosmetic; it reflects a structural difference in regulatory philosophy. Without a formal mandate to consider competition or cost, many Canadian regulators have less incentive to systematically integrate these factors into their rulemaking.

A similar divergence is evident in securities regulation. The UK’s Financial Conduct Authority (FCA) and the US Securities and Exchange Commission (SEC) place competition, growth, dynamism, and capital formation at the centre of their regulatory mandates (Figure 3).19

These are not just theoretical differences. SEC’s statutory responsibility to facilitate capital formation led to a practical framework that drives policies to increase market access for a broader range of firms. The SEC has introduced initiatives such as Regulation A+ and crowdfunding exemptions, which aim to make it easier for small and emerging firms to raise capital while balancing investor protection. The FCA’s mandate similarly incorporates competition as a core principle, emphasizing measures to ensure that financial markets remain vibrant and responsive to technological progress, highlighting also how this, in turn, will increase investors’ welfare.

In contrast, although some of the largest securities commissions – such as the OSC, BCSC, and ASC – are notable exceptions, explicit competition or capital formation mandates are not necessarily the norm across our 13 provincial securities commissions, nor at the umbrella organization, the CSA (see Figure 4 for CSA’s wordcloud).20 The Ontario government did take a step in this direction in 2021, when it expanded the OSC’s mandate to include fostering capital formation and competition.

While investor protection and market integrity remain fundamental and essential objectives, the absence of a consistently clear directive to foster market dynamism means that regulatory actions are more likely to be slanted towards a more cautious, conservative approach. There have certainly been some targeted efforts to support innovation and broaden access to capital, such as the CSA’s Financial Innovation Hub21 and their harmonized crowdfunding rules, but these remain isolated and ad hoc. Unlike the systematic, mandate-driven commitment seen in the UK and the United States, Canadian initiatives are not consistently rooted in a formal regulatory priority to promote capital formation.

This regulatory gap is particularly concerning given Canada’s persistent struggles with weak productivity growth, poor investment, sluggish economic expansion, and relatively low levels of innovation adoption.22 A financial regulatory environment that does not explicitly encourage competition, innovation, and capital formation may reinforce these trends by raising barriers to entry, increasing compliance costs for smaller firms, and discouraging capital market participation, particularly from high-potential startups and emerging sectors. The absence of a statutory capital formation mandate within securities regulation means that new firms seeking to grow or disrupt established industries may face challenges in accessing the funding they need, further contributing to a stagnant market environment.

Modernizing the mandates of Canadian regulators to explicitly recognize the tradeoffs between stability, investor protection, and economic dynamism is an economic imperative. Without a shift toward a more balanced regulatory philosophy, Canada risks falling further behind in capital market competitiveness, innovation-driven growth, and overall economic resilience. Financial stability does not have to come at the expense of progress, and as other international regulators are trying to do, we should aim to achieve the best-designed regulatory framework in order to foster both stability and market growth. A more forward-looking mandate, in which competition, capital formation, and innovation are treated as integral to the health of the financial system, would not only strengthen Canada’s economic position but also ensure that its regulatory framework remains adaptable to future challenges and opportunities.

4. Neglected by Design: Quantifying the Costs of Regulation

A practical consequence of the imbalance in regulatory priorities are gaps in how cost-benefit analyses are designed and implemented in Canadian financial regulation. A further goal of this paper is to help push this issue ahead by developing a method for more accurately quantifying regulatory costs. The aim is to create a new, annually updated and survey-based cost database that provides a new lens on the regulatory burden and equips regulators with a tool to better understand the real impact of their activity across firms of different sizes and sectors. We acknowledge upfront that we focus specifically on the cost side of the analysis, leaving the benefits assessment to future work.

4.1 The Importance of Quantifying Regulatory Costs and the Difficulties Implied by the Task

The costs of regulations – across all industries, including financial services – are often cited as one of the biggest factors contributing to reduced market entry, increasing industry concentration, and weak investment. This pattern is evident worldwide, including in the United States and Canada (Gutiérrez and Philippon 2019, 2017), as well as in many other developed countries (Aghion et al. 2021). The mechanism postulated by the literature above is that compliance costs as a result of government regulations disproportionately impact small firms, creating barriers to new entrants, inhibiting business growth, and therefore ultimately slowing down productivity. Additionally, when large incumbents face increased regulatory costs, they either incur them, which may affect other parts of their business, or pass some of these costs on to consumers, especially if, given higher barriers, they end up possessing significant market power. As a result, consumers will also be adversely affected, which has broader implications for the overall economy.

The central issue remains the unresolved question of how to define and quantify the total compliance cost properly, as well as how to assess whether these costs affect small and large firms differently. Measuring compliance costs at the firm level is, in fact, a highly complex challenge from both qualitative and quantitative perspectives.

First, from a qualitative perspective, there is no unanimous agreement on which costs to include and how to model their impact on different firms. While some argue that the biggest part of compliance costs can be significantly decreased through economies of scale and lobbying, and therefore are much smaller for larger firms (Davis 2017; Alesina et al. 2018; Gutiérrez and Philippon 2019; Akcigit and Ates 2020; Aghion et al. 2021), others suggest that small businesses are, in fact, the ones in a better position, as they receive plenty of exemptions (Brock and Evans 1985; Aghion et al. 2021).23

Second, from a quantitative perspective, measuring firm-specific regulatory burdens presents numerous obstacles. Quantifying firm-level compliance costs is complex due to limited granular data. Existing studies often focus on broad relationships or industry-level shocks (Gutiérrez and Philippon 2019), lacking detailed evaluations of individual business burdens. These obstacles include variations in regulatory requirements across financial subsectors, overlapping regulations from different government levels, tiered compliance rules, varying inspection stringency, and differing technological and efficiency constraints across firm sizes (Agarwal et al. 2014; Stiglitz 2009; Kang and Silveira 2021; Goff et al. 1996). As Goff et al. (1996) noted, “the measurement problems are so extensive that directly observing the total regulatory burden is practically impossible.”

4.2 Modelling and Measuring Compliance Cost and Its Impact on Labour Productivity: Traditional Methods and Our Approach

Traditional approaches to quantifying the regulatory burden typically fall into two broad categories: counting the number of regulations in force or measuring the size of compliance departments within firms.24 The first approach, despite its widespread use, is simplistic and can be misleading. It assumes that each new regulation automatically adds the same weight to firms’ compliance burdens, failing, therefore, to account for differences in complexity, enforcement, and actual economic impact. Most importantly, it also disregards the fact that not all regulatory documents impose additional costs. Some provide clarifications, interpretation, simplify compliance procedures, or consolidate existing rules, thereby reducing uncertainty and making it easier for businesses to adhere to legal requirements. A regulatory framework with an extensive set of well-organized, clearly written guidelines can be far easier to navigate than a system with fewer but ambiguous or conflicting regulations. Yet, a raw count of regulations makes no such distinctions, treating all rules as equally burdensome and limiting insights into the real costs faced by businesses.

The second common approach – measuring the size of compliance departments – is somewhat more informative but still incomplete. This method operates on the assumption that regulatory costs can be estimated by looking at the number of employees explicitly assigned to compliance roles.25 While this metric does offer a tangible measure of firms’ direct expenditures on compliance, it fails to capture the reality that regulatory obligations extend far beyond dedicated compliance teams. In practice, firms cannot limit compliance tasks to a single department; employees across multiple functions – including finance, operations, and even customer service – must allocate significant portions of their work to meeting particular regulatory requirements. These responsibilities often divert employees from their core business functions, increasing operational complexity and reducing efficiency in ways that are difficult to measure using traditional methods.

The failure to account for these indirect costs leads to a fundamental misrepresentation of how regulatory compliance affects firms, particularly with respect to labour productivity. Standard measures of productivity typically calculate output per worker, assuming that all employee time is dedicated to value-generating activities. However, when employees across departments must dedicate significant portions of their time to compliance, their effective contribution to production decreases even if they are not officially counted as part of the compliance workforce. This distortion is particularly relevant in highly regulated industries, such as the financial sector, where firms must continuously adapt to evolving rules, engage in periodic audits, and maintain detailed reporting practices. These obligations consume work hours that could otherwise be devoted to innovation, strategic growth, or client service. By failing to account for these hidden labour costs, traditional approaches systematically underestimate the true economic impact of regulatory compliance.

Evidence in support of this argument comes from occupational data sources such as the US O*NET database, which provides firm-level insights into job responsibilities at the single-employee level across industries. These data reveal that compliance-related tasks affect, to different extents, most of the workers, and are not confined to designated regulatory personnel.26

A more accurate framework for assessing regulatory costs must therefore go beyond these limited proxies and capture the full extent of compliance-related labour reallocation. This is precisely what we try to accomplish with our project. Through detailed firm-level surveys, we collect data not only on compliance department size but also on how regulatory responsibilities are distributed across the entire workforce. By distinguishing between employees who are fully dedicated to compliance and those who must allocate a portion of their time to regulatory tasks, we can develop a more precise estimate of how compliance demands affect firms’ overall labour productivity and financial performance. Our approach, which we call the Compliance Labour Cost Index, allows us to measure variation in regulatory costs across firms of different sizes and financial subsectors, helping to assess whether burdens are proportionate or not.27

Furthermore, our survey methodology captures the evolution of compliance intensity over time. This paper presents the first wave of our survey, with our long-term goal being to conduct it every year, thereby creating a dynamic, up-to-date resource for understanding regulatory costs. By maintaining a consistent, structured approach to data collection, we will be able to track changes in compliance burdens over time, offering insights into whether new regulations are increasing costs, whether firms are finding more efficient ways to comply, and how regulatory expenses vary across different business models. This database will provide a clearer picture of regulatory costs at the firm level and also equip policymakers with the empirical evidence necessary to design smarter, more effective regulations – ones that balance economic growth with necessary oversight.

4.3 Survey Results

28

The results presented here are based on an unbalanced panel29 of survey responses covering three fiscal years: 2019, 2023, and 2024.30 This structure allows us to capture both pre- and post-pandemic conditions while filtering out the most acute COVID-19-related distortions in 2020, 2021, and 2022. The panel includes firms of varying sizes across the different subsectors of the Canadian financial sector, enabling both an aggregate view and size-based comparisons. The key findings from this survey can be grouped into four main observations, each highlighting a distinct aspect of the compliance burden.

Fact 1: Compliance is Everyone’s Job!

Compliance work is now deeply embedded across the financial sector workforce. In 2024, on average, 73 percent of employees had at least some compliance-related duties, and close to 8 percent spent the majority of their time (75–100 percent) on such tasks. As postulated in the previous sections, regulatory obligations are not confined to specialist compliance teams but are interwoven into the daily operations of most departments, diverting time and focus away from activities that directly generate value for clients or shareholders. The pervasiveness of compliance roles means that regulation is no longer something handled at the margins of the business, but rather a constant presence shaping workflows across the organization.

Fact 2: Compliance Is Eating Payroll – A Growing Regulatory Burden Is Reshaping Workforce Allocation

The share of total labour costs devoted to compliance-related activities (time and salaries spent meeting regulatory requirements rather than delivering core products or services) has been rising steadily. Our Compliance Labour Cost Index stood at approximately 16 percent in 2019, rose to around 19 percent in 2023, and reached 22 percent in 2024. To put it differently, around one dollar in every five spent on payroll is now directed to tasks that exist solely to ensure regulatory adherence. To put these figures in context, Trebbi et al. (2023), using US establishment-level O*NET data, estimate that regulatory compliance accounts for 2.3 percent to 2.7 percent of total labour costs across the US financial sector. This divergence highlights the crucial need for a more systematic cost-benefit approach in Canadian regulatory design. We simply cannot afford such a big gap.31

Fact 3: External Compliance Costs Are Also Surging, and Are Eating into Revenues

While internal labour costs capture the human effort behind compliance, they tell only part of the story. A significant (and growing) portion of the regulatory burden is channelled through external spending: advisory fees, legal fees, compliance technologies, governance structures, and membership dues. These costs are less visible but no less impactful, directly affecting firms’ bottom lines and reducing their strategic flexibility. To gauge both their scale and their evolution over time, we measure external compliance costs as a share of total revenues. We can observe how this ratio has risen steadily over the three years analyzed, climbing from about 1.2 percent in 2019 to 1.6 percent in 2024. The increase reinforces how compliance imposes a mounting financial strain beyond internal labour, diverting resources that could otherwise be invested in innovation, growth, and other productive initiatives.

Fact 4: Size Matters (a Lot!) – The Compliance Burden Hits Small Firms Hardest

A striking asymmetry emerges between small firms (under 100 employees) and large firms (over 100 employees).32 While the growth rate of compliance involvement and costs appears independent of firm size, their magnitude is not. In both 2023 and 2024, an average of 35 percent of workers in small firms had high or medium compliance involvement, compared with just 13 percent in larger ones.

As a natural consequence, smaller institutions shoulder significantly higher compliance costs: in 2024, the labour cost index reached 20 percent for small firms, compared with 12 percent for larger ones.

This imbalance is particularly worrying when we consider that small firms and startups are often the main engines of innovation, and as they grow, of productivity growth as well. Yet, these seem to be precisely the firms disproportionately drained by regulatory demands, risking a throttling effect on the dynamism and competitiveness of the entire financial sector.

In short, these facts require attention. Reassessing compliance costs must be an urgent priority on the regulators’ agenda, as it is essential to ensure the health and resilience of our financial sector.

5. Policy Discussion and Conclusion

The updated regulatory scorecard confirms that the core patterns identified in prior analysis persist. Canadian financial regulation continues to focus overwhelmingly on stability and consumer protection, while innovation, competition, and cost-efficiency remain secondary. This regulatory orientation is not just a product of recent policy inertia; it is deeply rooted in the structural design of mandates and institutional priorities. Current mandates apply a lexicographic hierarchy that prioritizes financial stability and consumer safeguards above all else – often at the expense of reducing unnecessary regulatory burdens and fostering economic dynamism and growth.

This imbalance is set to become an even greater challenge amid profound global shifts. Political instability in the United States, ongoing conflicts, and broader geopolitical tensions have created a more volatile and unpredictable environment. Stability will remain crucial, but Canada also has an opportunity to adopt regulatory frameworks that actively promote efficiency, innovation, and growth. With such elements in place, Canadian financial institutions can better thrive in a changing world while reinforcing the very stability regulators aim to safeguard.

The costs of the current imbalance are already evident. Evidence shows that compliance burdens are rising sharply, with significant implications for firms’ competitiveness. Our Compliance Labour Cost Index, which tracks regulatory labour across the sector, reveals that compliance demands grew from 16 percent of total internal labour in 2019 to 21 percent in 2024. The strain is particularly acute for smaller firms, where compliance costs reached 28 percent of payroll – double the share borne by larger institutions. External compliance expenses, including advisory, technology, and governance costs, have also grown, further restricting firms’ ability to invest in growth and innovation.

These findings show that stability-focused regulation, absent economic balance, can erode productivity, innovation, and long-term market vitality. Smaller firms are particularly vulnerable, even though they are central drivers of competition and innovation. Policy responses should therefore focus on two priorities.

First, regulatory mandates must be modernized to recognize the full set of policy objectives: stability, investor protection, efficiency, growth, and competition. Explicitly embedding economic goals alongside traditional safeguards would bring Canadian practice closer to international standards and create a more adaptive framework. Encouragingly, securities regulators in Ontario, BC, and Alberta, as well as Ontario’s provincial prudential regulator, FSRA, have already begun acknowledging this need in business plans that emphasize competitiveness and in guidelines aimed at reducing regulatory burden. Our scorecard will continue to track whether such commitments translate into practice.

Second, regulatory design should always require rigorous cost-benefit analyses that are made publicly available at the outset of rulemaking. Transparent, upfront cost-benefit analyses would establish clear benchmarks against which post-implementation reviews can be meaningfully conducted. Tools such as our Compliance Labour Cost Index can enrich this process of comparison. Institutionalizing public cost-benefit analyses would ensure that regulations are evaluated not only against their intended goals but also against their real-world economic costs, enabling more proportionate and adaptive policymaking.

In sum, safeguarding stability and protecting consumers remain essential. But stability itself increasingly depends on Canada’s ability to sustain competitive, innovative, and efficient financial markets.

The author extends gratitude to Pragya Anand, Angélique Bernabé, Ian Bragg, Jeff Guthrie, Sarah Hobbs, Jeremy Kronick, Peter MacKenzie, Grant Vingoe, Mark Zelmer, Tingting Zhang, and several anonymous referees for valuable comments and suggestions. The author retains responsibility for any errors and the views expressed.

For the Silo, Gherardo Caracciolo – C.D. Howe Institute.

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