OSFI Modernizes Regulations, Balancing Stability with Economic Growth

TORONTO, ON – November 20, 2025

The Office of the Superintendent of Financial Institutions (OSFI) is undertaking a significant overhaul of its regulatory framework, announcing proposed changes to capital adequacy requirements, a continued push to streamline guidance, and a refined approach to climate risk management. These initiatives signal a broader effort to balance financial stability with fostering economic growth and reducing the regulatory burden on Canadian financial institutions.

Capital Adequacy and Lending Capacity

OSFI recently launched a 90-day public consultation on draft Capital Adequacy Requirements (CAR) for credit risk. The proposed changes aim to better align capital requirements with the true risks faced by financial institutions, potentially freeing up lending capacity and encouraging investment. The agency is considering reducing risk weights for certain residential real estate exposures and small to medium-sized business loans – a move welcomed by industry analysts.

“The goal isn't simply deregulation,” explained one banking source. “It’s about smart regulation. If capital isn't allocated efficiently, it stifles economic activity. These changes acknowledge that.”

The move comes after OSFI previously deferred increases to Basel III standardized capital floor levels, a response to international competitive pressures and concerns about the pace of adoption in other jurisdictions. The agency appears to be increasingly attuned to the need for a pragmatic approach to regulation, balancing prudential concerns with the realities of a competitive global market.

Industry experts anticipate that these changes could lead to lower borrowing costs for businesses and increased access to credit, particularly for SMEs. However, some analysts caution that any reduction in capital requirements must be carefully calibrated to avoid compromising the stability of the financial system. The consultation process will be crucial in ensuring that the final rules strike the right balance.

Streamlining Regulations and Reducing Burden

Beyond the proposed CAR changes, OSFI is continuing its initiative to streamline its regulatory guidance. The agency has already rescinded 52 documents – totaling over 600 pages – and plans to remove an additional 32 by the end of the year. This ongoing effort reflects a broader commitment to reducing the regulatory burden on financial institutions and improving the efficiency of the regulatory process.

“We’ve heard from industry stakeholders that the sheer volume of guidance can be overwhelming,” said a source within OSFI. “We're actively working to simplify the regulatory landscape and ensure that our guidance is clear, concise, and relevant.”

The agency is prioritizing the removal of outdated, redundant, or overly prescriptive guidelines. For example, recent changes have eliminated mandatory peer reviews for insurers, a move expected to save the industry significant time and resources. This commitment to simplification is viewed favorably by industry observers, who believe it will foster innovation and reduce compliance costs.

Addressing Climate-Related Financial Risks

As climate change continues to pose a growing threat to the global economy, OSFI is also taking steps to address climate-related financial risks. The agency has begun collecting data from Canada’s six systemically important banks and four internationally active insurance groups, providing valuable insights into the potential financial impacts of climate change.

OSFI is now focusing its climate risk reporting requirements on material exposures and high-emitting sectors. This targeted approach reflects a recognition that not all climate-related risks are created equal and that resources should be focused on the areas where the potential financial impacts are greatest. The agency is committed to aligning its approach with international standards, such as those developed by the Task Force on Climate-related Financial Disclosures (TCFD).

However, challenges remain. Integrating climate risk into traditional risk management frameworks requires significant investment in data, analytics, and expertise. Furthermore, the long-term nature of climate change poses unique challenges for risk modeling and forecasting.

“This is an evolving area,” noted one industry observer. “Financial institutions are still grappling with how to accurately assess and manage climate-related financial risks. OSFI’s leadership is crucial in providing guidance and setting expectations.”

The agency is also refining its approach to ensure that the requirements are clear and concise. This commitment to clarity is essential to enable financial institutions to effectively manage climate-related risks and support the transition to a low-carbon economy.