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Climate risk panel remarks by OSFI Assistant Superintendent, Mr. Ben Gully, at the C.D. Howe Institute

Jan 28, 2021

On January 28, 2021, OSFI Assistant Superintendent, Mr. Ben Gully, made relevant climate risk remarks as a Canadian financial services regulator during the recent C.D. Howe Institute panel discussion.

Mr. Gully noted that, for OSFI, there is a wide range of possible scenarios to consider when assessing the impact of climate change on financial institutions’ safety and soundness and in setting the appropriate prudential response. When confronted by change on the horizon, OSFI looks to the severe but plausible outcomes, collects information to inform its analysis and risk assessment, and then uses regulation and supervision to preserve financial institution resilience.

He noted that, by definition, the sound management of climate-related risks fits clearly within OSFI’s objectives. As a result, OSFI is taking a number of actions to look more deeply at the prudential impact of climate change in terms of physical, liability and transition risks. In this regard, he noted that transition risks are particularly significant for Canada given its endowment of carbon-intensive commodities and their importance to the Canadian economy.

In recognizing that OSFI does not have all of the answers, he noted that OSFI plans to advance its work through cooperating with domestic and international organizations. By working with others, OSFI will gain a better understanding of what may be appropriate in the Canadian context.

To that end, OSFI has released a Discussion Paper regarding climate-related risks on January 11, 2021. The Paper focuses on risks arising from climate change that can affect the safety and soundness of federally regulated financial institutions (FRFIs) and federally regulated pension plans (FRPPs). Comments are requested by April 12, 2021.

See a com­plete copy of Mr. Gully’s remarks at the C.D. Howe Institute panel discussion which are posted on OSFI's web­site.

Corporations Canada consulting on proposed corporate governance and disclosure regulations

Jan 29, 2021

On January 29, 2021, Corporations Canada published a consultation on regulatory proposals to implement the corporate governance amendments included in the Canada Business Corporations Act (CBCA) through Bill C-97 (CBCA).

The consultation includes proposals with respect to the regulations necessary to implement an annual say on pay advisory vote for shareholders, the disclosure required for reporting on both clawback policies and on worker, retiree and pensioner “well-being”. CCGG was a strong advocate for the inclusion of an annual non-binding say on pay vote in the CBCA and Corporations Canada cites CCGG’s advocacy in favour of clawbacks as one of its rationales for the increased prominence of such policies in corporate governance best practice. CCGG is reviewing the consultation and intends to submit a response by the March 31, 2021 deadline.

Review the consultation on the Government of Canada's website.

ESG Impact Is Hard to Measure — But It’s Not Impossible

Jan 22, 2021

Around the globe, a third of all professionally managed assets, or roughly $30 trillion, are now subject to ESG criteria. That’s a remarkable sum, one that represents an increase of more than 30% since 2016. Between April and June of 2020 alone, investors poured more than $70 billion into ESG equity funds, vastly exceeding recent annual flows.

Federal government releases diversity disclosure guidelines

Feb 03, 2021

On February 3, 2021, the Director General of Corporations Canada published guidelines with the goal of driving consistency in the diversity disclosure requirements for distributing corporations under the Canada Business Corporations Act.

These guidelines address how to effectively disclose:

  • the timeframe for diversity information disclosure
  • targets for representation on the board and among senior management and
  • the number and percentage of directors from each of the designated groups on the board and among senior management.

The guidelines are provided to encourage corporations to disclose their diversity information yearly in a more consistent manner. 

Review the guidelines on the Government of Canada's website.

How blockchain impacts financial reporting controls

Jan 06, 2021

The internal control environment will be different in a blockchain-enabled world, making it critical for finance stakeholders to understand the technology’s unique capabilities, risks, and benefits.

As blockchain becomes more mainstream, it’s important to focus on how this technology intersects with an organization’s system of controls over financial reporting. With careful implementation and integration of blockchain-enhanced tools, companies can leverage the technology’s distinctive capabilities to create more robust, reliable, effective, and efficient controls. At the same time, however, blockchain creates unique risks and the need for new or modified controls.

Review the full article.

How CFOs can lay the groundwork for AI

Jan 25, 2021

As they integrate AI into their processes, CFOs need to help employees see it as a collaborator, not a threat.

A growing number of CFOs are exploring AI technologies in an effort to yield greater business insights, enhance financial accuracy and predictability, and reduce labor-intensive processes in the finance function.

In fact, “AI’s ‘early adopter’ phase is ending,” according to the recently published third edition of Deloitte’s State of AI in the Enterprise report.

Review the full article.

IESBA Meeting Highlights: November/December 2020 Meetings

Feb 04, 2021

In February 2021, the In­ter­na­tional Ethics Stan­dards Board for Ac­coun­tants (IESBA) released the high­light summary of its vir­tual meet­ings held on November 30 – December 4, 8 and 9, 2020. 

Agenda items included:

  • Non-as­sur­ance Ser­vices (NAS)
  • Fee-re­lated Pro­vi­sions of the Code (Fees)
  • De­f­i­n­i­tions of Listed En­tity and Pub­lic In­ter­est En­tity (PIE)
  • Tech­nol­ogy
  • En­gage­ment Team – Group Au­dits Independence Issues

Re­view the high­lights and pod­cast on the IESBA's web­site.

IESBA proposes holistic approach to defining a public interest entity

Jan 29, 2021

On January 29, 2021, the International Ethics Standards Board for Accountants (IESBA) released for public comment the Exposure Draft, "Proposed Revisions to the Definitions of Listed Entity and Public Interest Entity in the Code". Comments are requested by May 3, 2021.

The proposed revisions broaden the definition of a public interest entity (PIE) to include more categories of entities, given the level of public interest in their financial condition, for the purposes of additional independence requirements to enhance confidence in their audits.

Among other matters, the proposed revisions:

  • Introduce an overarching objective for additional requirements to enhance confidence in the audit of financial statements of PIEs.
  • Provide guidance on factors to consider when determining the level of public interest in an entity.
  • Broaden the definition of PIE to additional categories of entities.
  • Replace the term “listed entity” with the term “publicly traded entity” and redefine that PIE category.
  • Introduce new requirements for firms to determine if additional entities should be treated as PIEs for independence purposes and to publicly disclose if an audit client was treated as a PIE.
  • Recognize and encourage local regulators to refine PIE categories in regard to national conditions.

Review the press release and Exposure Draft on the IESBA's website.

IESBA underlines importance of objectivity for engagement quality reviewers and other appropriate reviewers through enhanced guidance

Jan 14, 2021

On January 14, 2021, the International Ethics Standards Board for Accountants (IESBA) released revisions to the International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code) addressing the objectivity of an engagement quality reviewer (EQR) and other appropriate reviewers. This project dovetailed with the International Auditing and Assurance Standards Board’s (IAASB’s) development of International Standard on Quality Management (ISQM) 2, Engagement Quality Reviews, which was finalized in December 2020.

The revisions provide guidance that supports ISQM 2 in addressing the eligibility of an individual to serve in an EQR role, focusing on the critical attribute of objectivity. Among other matters, the guidance:

  • Elaborates on the need to identify, evaluate and address threats to compliance with the fundamental principle of objectivity that might arise in the appointment of an individual as an EQR for a given engagement;
  • Explicitly refers to and supports the requirement in ISQM 2 for a firm to establish, as a condition for eligibility, a cooling-off period of two years before an engagement partner can assume the EQR role on the same engagement; and
  • Emphasizes that this cooling-off requirement in ISQM 2 serves the dual objective of supporting compliance with the fundamental principle of objectivity and the  high quality of engagements.

The guidance may also apply in situations where, as a safeguard to address identified threats to compliance with the fundamental ethics principles, an individual is appointed as an appropriate reviewer for work performed.

The enhanced guidance will become effective December 2022.

Review the press release and revisions on the IESBA's website.

IOSCO calls for globally consistent, comparable, and reliable sustainability standards

Feb 24, 2021

On February 24, 2021, the International Organization of Securities Commissions (IOSCO) has released a statement noting the urgent need for global sustainability standards and supporting a Sustainability Standards Board (SSB) under the IFRS Foundation.

The IOSCO Board has reviewed the progress made over the past year since the publication of its report Sustainable Finance and the Role of Securities Regulators and IOSCO in April 2020. IOSCO concludes that there is an urgent need to improve the consistency, comparability, and reliability of sustainability reporting, with an initial focus on climate change-related risks and opportunities, which would subsequently be broadened to other sustainability issues.

The IOSCO Board identified three priority areas for improvement in sustainability-related disclosures by companies and asset managers:

  1. Encouraging globally consistent standards;
  2. promoting comparable metrics and narratives; and
  3. coordinating across approaches.

The IOSCO Board expresses a clear commitment to work with the IFRS Foundation Trustees and other stakeholders to advance these priorities. IOSCO notes that its engagement with the Trustees will focus on the following objectives:

  • Establishing an SSB with a strong governance foundation. IOSCO welcomes the announcement by the Trustees of the IFRS Foundation on 2February 2, 2021 signaling the next phase of their work towards establishing an SSB under the IFRS Foundation structure as they have received clear feedback on their September 2020 consultation that the IFRS Foundation should play a role in this area. IOSCO looks forward to assessing the final proposals by the Trustees of the IFRS Foundation and to consider the future endorsement of the proposed SSB and its standards similar to its role in the endorsement and oversight of international accounting standard-setting by the IASB.
  • Building on existing efforts. IOSCO encourages the SSB to leverage the content of existing sustainability-related reporting frameworks. IOSCO welcomes the initiative of the alliance of leading sustainability reporting organizations and their prototype for an approach to climate-related disclosures published in December 2020; IOSCO encourages further consideration of this prototype as a potential basis for the SSB to develop climate-related reporting standards.
  • Encouraging a “building blocks” approach. IOSCO encourages a “building blocks” approach to establishing a global sustainability reporting system. This would provide a consistent and comparable baseline of sustainability-related information that is material to enterprise value creation, while also providing flexibility for coordination on reporting requirements that capture wider sustainability impacts. IOSCO aims to support ongoing international coordination and to help encourage global consistency on wider sustainability disclosure requirements. To this end, IOSCO is ready to explore the establishment of a multi-stakeholder expert consultative committee within the IFRS Foundation structure.

In conclusion, IOSCO repeats the statement in its response to the Trustees' consultation that together, the IFRS Foundation’s initiative and the parallel collaborative initiative of an alliance of sustainability reporting organizations can further efforts to facilitate comparable high-quality international standards that provide the content that capital markets need, within a transparent standard-setting architecture with a robust and inclusive governance structure.

Review the full statement on the IOSCO's website.

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