Impact of Regulatory Reform on ERM at Canadian Western Bank

Concurrent Session 5D: Impact of Regulatory Reform on ERM at Canadian Western Bank Moderator: Kathryn Hyland Presenters: Blair Himmelreich 9/15/2014
5D – Impact of Regulatory Reform
on ERM at Canadian Western Bank
Blair Himmelreich
Director, Group Risk
Canadian Western Bank
October 1, 2014
Objectives
 Will describe what impacts the recent changes in regulatory
requirements in the financial services industry have had on the ERM
process at Canadian Western Bank (CWB).
 Will provide some insights in how corporate governance and overall
risk management has been strengthened and what new processes
have been developed.
 Will outline some of the challenges, but also the benefits these have
provided.
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CWB Context
July 31, 2014 Total Assets: ~ $20.0 billion # Consecutive Profitable Quarters: 105 CWB is a mid‐tier non conglomerate Schedule 1 Bank, headquartered in Edmonton, Alberta
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CWB Context
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Risk Management at CWB
RISK – is not a four letter word “ ..it’s important to note the objective is not to eliminate risk. Risk is the business we’re in. The objective is to make sure it is managed prudently.” Allan Jackson – CWB’s Board Chair
RISK – is not just credit, but must be considered more broadly Risk Management ‐ The culture, systematic process and structures that are directed towards realizing potential opportunities while managing adverse effects.
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Risk/Opportunity
RISK SIDE
OPPORTUNITY
Prevention &
Preparation
Small and
easy to see
Cost of Failure:
Response &
Recovery
Huge and
hard to see,
but can be
a
Strategic
Advantage
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Strategy Linkages
• Must link to the corporate Strategy:
Risk Management is NOT broken
Holistic View
Is Group Wide
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Regulatory Reform
“Regulatory requirements are increasing
exponentially since the financial crisis. The
number is greater and the cost to address
those is increasingly having an impact on
returns”
Rani Turna, PWC Canada
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CWB – MD&A
“…the intensity of supervisory oversight…has increased significantly….
…includes amplified supervisory activities, an increase in the volume of
regulation, more frequent data and information requests…, and shorter
implementation time frames for regulatory requirements…. Certain
regulations may also impact CWB’s ability to compete against both
non-OSFI and other OSFI regulated entities. Effective management …..
requires, and is expected to continue to require, considerable internal
resources and the active involvement of senior management and the
Board. Notwithstanding the additional resources, the volume, pace and
implementation of new and amended regulations and standards
increases the risk of unintended consequences for all regulated entities
and unintended non-compliance..”
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Main Regulator - OSFI
In Canada the primary prudential regulator and
supervisor for all federal FI’s is OSFI.
Primary to OSFI’s mandate :
• Protect the rights and interests of depositors, policy holders, pension
plan members and creditors of financial institutions; and
• Contribute to public confidence in a safe and sound financial system.
OSFI’s activities can be divided into two broad functions:
• Supervision
• Regulation
OSFI’s Standard Note: The size, complexity and risk profile of an
institution may not warrant……
KEY: ERM has direct communication channels with key OSFI staff
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OSFI Guidance
Leverage Requirements
Guideline
Corporate Governance
- Guidance
Anti-Money
Laundering & ATF
E-19 – ICAAP/SOA
Basel III Implementation
- Capital Adequacy
ERM
OSFI Supervisory
Framework
Sound Governance at
TSA & AMA Institutions
Operational Risk
Data Maintenance at
TSA & AMA Institutions
Regulatory Compliance
Management
E-18 – Stress Testing
Cyber Security SelfAssessment Guidance
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Corporate Governance
• Risk Governance
• Interface between the Board & Oversight
Functions
• Oversight of Risk
• Risk Appetite Statement
• Mandate
• Internal Risk Committees
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Internal Risk Committees
Value:
 Aligned risks to key management
 Allowed focused discussion and attention – growth
 ERM is at the table
How:
ERM was the facilitator
with the executive
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1b) Three Lines of Defence
Value:
 Formalized reporting relationships
 Help clarify boundaries between 1st and 2nd lines
 Solidified partnerships in 2nd lines
 Communicated that Internal Audit must be the
most independent
How:
1. ERM was on the core team with the Corporate
Secretary to conduct the self-assessment and
development of recommendations
2. ERM reported to Board
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Operational Risk
Comprehensive self-assessment:
Dedicated resourcing
Provided context of 2nd line of defence
Cyber Security self-assessment
OpRisk Training
Sound process tool
Value to Business
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Value to Business
OpRisk Process
Business Value
Enhanced risk assessments  Greater understanding of the risks and the risk management
 Clearer understanding of business flows
 Better understanding of drivers
 Know the root cause
 Better awareness
 Smoother product launches
Business process mapping KRI
Root Cause Analysis Risk Watch & OpRisk Notes Enhanced new product risk assessments
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Paradigm Shifts
? The New Normal
• Mid-Tier Expectations
• ERM is almost always impacted
• Data Calls are a fact of life
Task: Find the value
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Opportunity/Challenge
Can ERM be the one to portray the
regulatory requirements as a
value proposition?
 Or is ERM just the bad news
messenger?
CWB Strategic Direction: “crucial to our clients’ futures”
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How to Add Value
Is ERM asked to provide comments before
regulatory guidance is finalized?
Can ERM relate/map it to your FI’s processes?
Does ERM look at the “principle” not just the
rule?
Can ERM relate it to other guidance?
What method does ERM use
to get the message across?
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ERM Challenges
On Regulatory burden, the double double:
1. To be in the loop, part of your FI’s
process and not a bystander
2. To find the time to do an adequate review
to fully understand the impact/linkages
3. To look at the “value” proposition
4. To be visible
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Conclusion
Regulatory change is the new Normal, the
challenge is to find the “value”
Need to keep on top of it, be in the loop,
be a trusted advisor on the regulatory
changes
Partner with management
most impacted
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Questions
Contact Information:
[email protected]
780‐392‐8458
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