In the ever-evolving landscape of Canada’s financial markets, the Office of the Superintendent of Financial Institutions (OSFI) has updated its Annual Risk Outlook for the current period. This report identifies numerous significant risks that may impact the financial sector and outlines comprehensive strategies to ensure stability and resilience. As 2025 unfolds, the report’s findings shine a spotlight on various vulnerabilities and the regulatory responses that aim to mitigate them.
Integrity and Security Risks
The OSFI report ranks integrity and security risks as the foremost concern for the current year. Heightened geopolitical tensions, rapid technological advancements, and an increased reliance on complex third-party networks collectively contribute to a volatile environment. Institutions throughout Canada are increasingly vulnerable to both external threats and internal weaknesses. To bolster defenses against these risks, OSFI has augmented reporting requirements specifically for cyber and technology-related incidents. This proactive approach aims to fortify the integrity and security of Canadian financial institutions.
Further compounding these risks are issues related to sophisticated cyber-attacks and data breaches. The threat landscape grows more intricate, making it imperative for organizations to maintain robust cybersecurity measures. OSFI’s updated guidelines necessitate real-time reporting and constant vigilance, enabling institutions to react swiftly to emerging threats. By demanding heightened standards, OSFI ensures institutions are better prepared to manage the complexities of a digital financial ecosystem.
Credit, Funding, and Liquidity Risks
Wholesale credit risks remain a critical focus in OSFI’s outlook. Corporate and commercial borrowers continue to grapple with economic challenges, even in the context of recent interest rate reductions. Macroeconomic uncertainties, elevated debt servicing costs, and weakening consumer demand pose substantial obstacles. Many commercial ventures face additional pressures from declining real estate values, driven in part by reduced demand and persistently high vacancy rates. To monitor these trends, OSFI has intensified data collection efforts from financial institutions.
Similarly, funding and liquidity risks highlight a crucial aspect of financial stability. Amidst renewed financial market uncertainties, OSFI is particularly vigilant in ensuring institutions can manage liquidity risks effectively. This involves a thorough examination of liquidity positions for entities operating across various jurisdictions and dealing in multiple currencies. Such scrutiny helps mitigate the possibility of disturbances that could destabilize financial markets.
As the housing market remains subject to volatility, risks associated with real estate-secured lending and mortgages are of particular concern. Borrowers face the prospect of higher rates upon renewal within the next year, which could lead to increased delinquency rates, especially in urban centers like Vancouver and Toronto. OSFI’s focus on enhanced reporting standards aims to ensure financial institutions can navigate these intricacies successfully.
Insurance Sector Vulnerabilities
Within the insurance sector, the OSFI highlights ongoing investment volatility, rising auto insurance claim costs, and the ramifications of natural catastrophes. Catastrophic losses from the previous year reached approximately $8.5 billion, underscoring the magnitude of the challenge. Over the following year, OSFI will scrutinize capital management practices and operational resilience, with a particular emphasis on cybersecurity preparedness. The regulator is especially watchful of third-party service provider risks, given their increasing role in the sector.
For property and casualty (P&C) insurers, OSFI plans a thematic review focusing on how geopolitical risks influence supply chain disruptions and claims inflation. This careful examination aims to decipher the potential knock-on effects on the insurance sector. Additionally, the changing landscape of the housing market prompts a profound analysis of mortgage insurers’ financial resilience. OSFI’s detailed scrutiny will help ensure that the insurance sector can adapt to these dynamic conditions.
Attention will also be directed toward life insurers, with investment risk, asset-liability management, and the repercussions of IFRS 17 policies on capital being top priorities. There’s an imperative to evaluate how insurers adjust to climate transition and physical risks, as the growing awareness of environmental risks transforms the operational landscape. Enhanced oversight of anti-money laundering measures and the quality of regulatory data for P&C insurers reinforce OSFI’s commitment to maintaining sector integrity.
Supervisory Priorities and Future Outlook
In the dynamic realm of Canada’s financial markets, the Office of the Superintendent of Financial Institutions (OSFI) has revised its Annual Risk Outlook for the present year. This updated report highlights a range of significant risks that could potentially impact the financial sector. It also outlines detailed strategies developed to ensure the sector’s stability and resilience. As 2025 progresses, the findings of this report emphasize different vulnerabilities within the financial system. These include emerging threats and other issues of concern that need addressing. It also provides insights into the regulatory measures planned to mitigate these risks. Through these efforts, the OSFI aims to uphold the robustness and integrity of Canada’s financial markets, ensuring they can withstand potential challenges and adversities.
