OSFI Updates Model Risk Management Guidance; Comments Due March 22

The Office of the Superintendent of Financial Institutions (OSFI) announced a proposal to revise the E-23: Model Risk Management Guideline so that it applies to all analytical models used by federally regulated financial institutions (FRFIs) and federally regulated private pension plans (FRPPs).

The revised guideline includes forecasting economic conditions, estimating financial risks, pricing products and services, and optimizing business strategies. It now also includes models used for non-financial risks such as climate, cyber and tech and digital innovation risks. The E-23: Model Risk Management Guideline incorporates input received by during public consultations undertaken in May 2022.

OSFI recognizes that federally regulated insurers and FRPPs also heavily rely on models to support their decision-making. Considering this, OSFI proposes to extend the applicability of Guideline E-23 to include these industries as well. The revised Guideline E-23 adopts a flexible and principles-based approach, enabling FRFIs and FRPPs to tailor model risk management policies, procedures and processes to their size and complexity.

An industry session for FRFIs and FRPPs will be held on January 17, 2024. The revised Guideline E-23 remains in draft form and will be finalized after the public consultation period closes and comments are considered.