Bank on Varied Work at the Regulator

Different actuaries focus on enterprise risk management (ERM) to a greater or lesser extent. But for Danny Cooper at the Office of the Superintendent of Financial Institutions (OSFI), ERM is at the core of his work.

Mr. Cooper, a Director in OSFI’s Deposit Taking Group, says OSFI’s Supervisory Framework is based on ERM, with the organization focusing on the risks faced by banks and insurance companies in such areas as compliance, internal audit, and other controls within organizations.

Although his work centres on banking, he said: "The framework is the same whether it is banking or insurance; you have new business risk, lapse risk, and so on. With insurance companies, you are looking at a variety of products with significant investment, mortality/morbidity, and expense risks. On the banking side, the deposit-raising structure is a significant risk, and you have asset risk in terms of placing mortgages and other types of assets. There are also opportunities to remove risk: insurers have reinsurance, and banks have securitization. There are differences and similarities. But corporate governance, capital requirements, legislative compliance requirements, anti-money laundering, outsourcing, and asset liability management are examples of what is important in both worlds.

"OSFI’s Supervisory Framework talks about inherent risks and controls; institutions could be taking on too much risk or not effectively controlling it. We deal with a range of activities, and our work is really about overseeing the controls that exist. We want to make sure that the public—depositors, creditors, policyholders—receive what they are promised."

Mr. Cooper, a Fellow of the CIA and Society of Actuaries who holds HBSc, MMath, and MBA degrees, said one of the keys to successful risk management is "complete risk identification. You have to identify all the risks, and then you can look at the risk appetite and develop appropriate parameters for monitoring it. You should ask: ‘What risks am I actually taking on?’

"Actuaries are one of the key parties responsible for risk management in their institutions, but the regulator can provide guidance about some of the risks they should be looking at. We do not manage the risk, but we can provide another layer of oversight. Senior Management and the Board are the primary oversight functions, and as a last resort there is OSFI or the provincial regulators."

In his current role, Mr. Cooper focuses on such institutions as domestic banks, trust companies, foreign bank branches, and merchant acquirers. He has been with OSFI for 12 years, having previously worked in pension consulting and life insurance, and said: "OSFI has allowed me to get a very broad perspective of the banking industry. The regulator is a place where you can be exposed to many different industries, and OSFI fosters this kind of development.

"I wanted to understand the risks of different institutions and how they are managed. I’ve worked in banking for approximately one year, and I’ve learned a lot, but there is still more to learn, particularly with Basel III coming in. Although there is currently no Basel equivalent for insurance companies and each jurisdiction is looking at different options, the Basel III changes for banks will be worldwide, and will eventually impact the insurance industry. Each world influences the other."

He said banking offers fresh challenges and opportunities for actuaries: "There is the same applicability of risk management skills in insurance and banking. In both industries, it is helpful for actuaries to understand the risks in existing products, and to think about the complete management of a product through the product lifecycle.

"Some large life insurance companies have established bank and trust subsidiaries, and some large banks have established subsidiaries focused on insurance. Financial institutions are seeking the best risk–reward trade-off. Over time, more and more actuaries could be migrating to the banking world."