Financial innovation will require regulators to embrace risk, OSFI head says
Canada may need to set aside a historically conservative risk appetite to avoid stifling digital innovation in the regulated banking system, including crypto assets, the country’s top financial services regulator said Wednesday.
“If we want to truly encourage innovation, our mindset and our risk appetite for institution entry and institution exit (need to change),” said Peter Routledge, head of the Office of the Superintendent of Financial Institutions.
“We have historically had a fairly significant conservative risk appetite for institutional failure. Not every innovator succeeds; some do, some don’t.”
Speaking at an Institute of International Finance (IIF) event, Routledge said he was not talking about allowing bank failures, adding that Canada’s strong set of regulations led to the resiliency of Canada’s banking system through crises from the global financial crisis of 2007 to 2009 through to the COVID-19 pandemic.
Still, he said, there is an argument to be made for adjusting requirements to encouraging cryptocurrency and other digital innovation inside the existing regulatory framework rather than outside it, where risks can become concentrated and can’t be easily monitored.
The key is to find a balance that brings the benefits of innovation to the system without sacrificing materially the financial sector resilience that is the result of the regulatory framework.
“Our first perspective on digital and crypto assets is, how can we leverage the benefits of that innovation without sacrificing materially financial sector resilience? And I do think it’s possible,” Routledge said.
One of the things OSFI is looking at is whether approvals process and requirements for entry into the regulated financial system are too onerous
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