OSFI To Finalize Risk Management Guidance Covering The Use Of AI And Machine Learning Within Models

Financial institutions and technology vendors alike are anticipating the release by the Office of the Superintendent of Financial Institutions (OSFI) of its updated guidance on "model" risk management. Draft guidance published in the fourth quarter of 2023 significantly expands OSFI's current guidance [PDF] (Guideline E-23) and has important implications for the use of artificial intelligence (AI) and machine learning (ML) by financial institutions.

The current version of Guideline E-23

The current version of Guideline E-23 outlines OSFI's expectations for the establishment of an enterprise-wide model risk management framework by federally regulated financial institutions operating in Canada. The current guideline is noteworthy for its risk-based approach, with a clear emphasis on managing the use of models that create material risks to financial institutions. The current guideline applies only to deposit-taking institutions (i.e., banks, bank holding companies,