Credit Union and Insurance Prudential – News You Need

In this issue

Meet Meet Mehrdad Rastan,EVP Credit Union & Insurance Prudential

Meet Mehrdad Rastan, EVP Credit Union & Insurance Prudential

Mehrdad Rastan is a passionate leader with over 25 years of experience executing strategic initiatives, establishing strong partnerships, building high performing teams, and championing transformational organizational culture.

Mehrdad has extensive regulatory experience having served in senior positions at FSRA and at the British Columbia Financial Services Authority (BCFSA). He oversaw the re-build of FSRA’s recovery framework and the enhancement of the resolution regime and led the development of the integrated Risk Based Supervisory Framework (RBSF).

Prior to his regulatory roles, Mehrdad held strategic and risk management positions in investment, hedge, and pension funds, and founded start-ups in construction, entertainment, and technology. Mehrdad holds degrees in physics and finance and the professional Financial Risk Manager (FRM) and Chartered Financial Analyst (CFA) designations.

Welcome to the first issue of FSRA’s Credit Union and Insurance Prudential Newsletter.

Over the past two years, I led FSRA’s Relationship and Risk Management department and at the beginning of 2022, I assumed the role of EVP overseeing FSRA’s Credit Union and Insurance Prudential division. I’m looking forward to collaborating with you as we work together to make improvements that will benefit and protect depositors, members, policy holders, and consumers. 

With all that’s going on I want to ensure you’re kept informed of FSRA’s initiatives; therefore, I’m establishing this quarterly newsletter.

Principles Based Regulation and Risk Based Supervision

I’m pleased to report that we’re making essential and steady progress. In collaboration with you, we’re building the foundational and necessary elements of a strong and robust regulatory framework as we move to be a leader in Canada of principles based regulation. This work is aligned with and enables a maturing system (regulator and regulated sectors) that are operating in evolving and more competitive and complex financial and economic environments.

In this first newsletter I’ll reflect on how this work positions the credit union sector as a leader of the principles-based and outcomes-focused approach and starts the provincially regulated insurance sector on a similar path. 

Even before FSRA was launched, we envisioned principles based regulation (PBR) and risk based supervision (RBS) as foundational aspects of the new, integrated regulator. You’ll continue to hear about FSRA’s approach to PBR and RBS in future newsletters.

What it means for credit unions and provincially regulated insurance companies

PBR and RBS change the information we collect, what we analyze, and how we supervise (e.g., integrated conduct and prudential supervisory assessments of regulated financial institutions – credit unions and provincially regulated insurance companies). This approach changes the nature of your relationship with FSRA.

PBR means you have more flexibility to determine how to meet FSRA’s regulatory expectations and outcomes. RBS means the size, complexity, and risk profile of your financial institution informs our regulatory interactions and our level of supervisory engagement with you.

RBS increases the effectiveness of supervision. It enables meeting supervisory objectives (e.g., protection of users of financial services, safety and soundness of regulated institutions, stability of the regulated sectors) while increasing efficiency by allocating resources to the areas of greatest risk. 

RBS seeks to assess the most important prudential and conduct risks posed by regulated institutions to supervisory objectives and the extent to which they can manage and mitigate these risks. FSRA’s Risk Based Supervisory Framework (RBSF) and the forthcoming Insurance Prudential Supervisory Framework (IPSF) provide the methodology to determine the risk profiles of institutions accurately and consistently.

For the PBR and RBS approaches to work effectively, FSRA will prioritize constructive two-way communication.

In a PBR environment, the regulator communicates its objectives, expectations, and the outcomes clearly and applies the principles consistently, fairly, and proportionately. Regulated entities adopt a self-reflective approach to the development of processes and practices to ensure that the expectations and outcomes articulated by the regulator are met. A critical success factor is for the regulator and institution to work collaboratively with mutual trust to fulfil their respective sides of this agreement.

Hence, clarity and transparency are paramount, so you understand the expectations and we understand the operational impacts with the overall goal of achieving and maintaining regulatory efficiency and effectiveness. 

In summary, PBR means, when warranted, FSRA will generally move away from detailed, prescriptive requirements, and instead will articulate its regulatory expectations through higher-level, broadly stated principles to set the standards by which its regulated entities will conduct business.

Looking ahead: 2022-23 Business Plan

The goal of FSRA’s modernization work is to build a modern, effective, and robust regulatory framework to ensure financial institutions  are safe and sound, and the sectors are stable and viable for the long term. Concurrently, FSRA will continue to support prudent growth and expansion of business activities as scale and diversification are success factors in Ontario’s modern financial services environment.

This transformation will continue over the next few years, and we appreciate your patience and cooperation as we continue to strengthen the system together. As part of FSRA’s 2022-23 business plan we’ll continue work on the following priorities for credit unions and provincially regulated insurance companies:

  • Implement the new credit union legislative framework (CU)
  • Enhance financial stability structures (CU)
  • Implement Risk Based Supervision (CU)
  • Implement Insurance Prudential Supervision (Insurance)

Over the past three years we’ve sought feedback from you and your teams since you know best what’s needed to support your members, customers, and communities. I’ll share more about what we will be working on for 2022-2023 in my next newsletter. In the meantime, I want to reiterate how much I value your input and collaboration as open, honest dialogue is key to how we will continue to work constructively together.

Engagement and Collaboration

Stakeholder Advisory Committees

FSRA’s Stakeholder Advisory Committees (SACs) provide input and advice on FSRA’s priorities, budget, principles based regulation, and other topics determined by our Board. As a result of feedback from these groups, we’ll be hosting more sessions to facilitate communication and informing sharing with you.

FSRA is currently accepting applications for SACs from individuals interested in serving a two-year term beginning in the spring. Applications are due February 25, 2022. You can read more here: Call for members for FSRA Stakeholder Advisory Committees.

Technical Advisory Committees

There are four multi-year Technical Advisory Committees (TACs) underway. These are more targeted than FSRA’s SACs and are key pieces in our sector engagement approach. TACs give you an opportunity to contribute to the dialogue.

All TACs have been recruited through a public call process and members are selected based on diverse relevant skill sets. As a result of feedback from your colleagues in these groups, we’ve also introduced tools like transition plans for new changes.

Summaries from SAC and TAC meetings are posted on our website here:

Public consultations

For credit unions there are two open consultations on proposed guidance with one more coming in early February:

For provincially regulated insurance companies, we’ll be consulting on the new Insurance Prudential Supervisory Framework in the coming months and will be looking forward to getting sector and public feedback on our approach.

Thank you for your involvement, collaboration, and continued support.

Implementation support

Credit unions: stay tuned for more updates on how we’ll update you and your teams on these FSRA approaches and the new rules – Sound Business and Financial Practices, Capital Adequacy Requirements and Liquidity Adequacy Requirements. In particular, details on the reporting requirements for the new Capital Adequacy Requirements will be announced in the coming weeks.

Provincially regulated insurance companies: The most recent TAC meeting was held on January 28, 2022. FSRA presented and discussed its approach to the IPSF and how it aligns with FSRA principles. FSRA is focused on creating a dialogue with sector participants to create a framework that is flexible and proportional based on the size and complexity of the institution. The meeting summary will be posted here in the coming weeks: Technical advisory committee for insurance prudential regulation and supervision.

Stay safe and healthy,