In April 2024, the Office of the Superintendent of Financial Institutions (OSFI) introduced a new approach to assessing risk in Canada’s financial sector: the Overall Risk Rating (ORR). This new system is part of OSFI’s updated Supervisory Framework, which aims to ensure that federally regulated banks, insurers, and pension plans remain safe and resilient. The ORR provides each institution with a numerical score that reflects its overall level of risk and its likelihood of experiencing serious financial distress. The scale runs from 1 to 8, with 1 indicating the lowest level of risk and 8 representing the highest.
This reform represents one of the most significant changes to OSFI’s supervision in more than two decades. Previously, OSFI relied on a four-stage rating system that placed institutions into broad intervention categories ranging from “normal” to “non-viable.” While that system was effective for identifying major problems, it lacked nuance. The new eight-point ORR scale offers greater precision, allowing OSFI to distinguish between smaller variations in institutional health. The added detail helps regulators detect early signs of weakness before they become serious and enables institutions to take corrective actions in advance (Torys LLP 2024).
The ORR is grounded in a comprehensive analysis of four critical dimensions: business risk, financial resilience, operational resilience, and risk governance. Each of these categories captures a distinct facet of an institution’s strength or vulnerability. Business risk examines the sustainability of the institution’s business model, looking at whether its strategies can remain viable amid economic and competitive shifts. Financial resilience assesses whether the organization possesses sufficient capital and liquidity buffers to withstand financial shocks. Operational resilience focuses on the institution’s ability to maintain core operations during disruptions such as cyber incidents or system failures. Finally, risk governance evaluates the quality of oversight, accountability, and decision-making processes at the board and management levels (Office of the Superintendent of Financial Institutions 2024a).
For larger and more complex institutions, OSFI assigns individual ratings for each of these four areas in addition to the overall ORR. Typically, the weakest of these category ratings has a decisive influence on the final ORR, since one area of weakness can undermine the institution’s overall stability. Institutions are also grouped into “tiers” based on their size, complexity, and potential impact on the broader financial system. A Tier 1 institution, such as a major bank, receives more extensive and frequent reviews than a smaller Tier 5 entity. The tier structure allows OSFI to apply its framework consistently across the sector while tailoring the level of scrutiny to each institution’s systemic importance (Office of the Superintendent of Financial Institutions 2024b).
The meaning of each ORR score is straightforward but significant. Ratings from 1 to 4 indicate minimal to moderate risk, suggesting that the institution is fundamentally sound, though there may be issues that warrant attention. Ratings from 5 to 8 signal elevated or severe risk. These higher ratings suggest that OSFI has identified material concerns that could threaten the institution’s viability if not addressed promptly. An ORR of 5 might trigger heightened supervisory monitoring, while a rating of 8 indicates that the institution is on the brink of non-viability and may soon face resolution or intervention (The World Law Group 2024).
The introduction of the ORR system matters because it strengthens OSFI’s ability to act proactively rather than reactively. By using an eight-point scale instead of four broad stages, the regulator can identify early warning signs and deploy supervisory measures before risks escalate. This proactive approach also gives institutions clearer feedback about where they need improvement—whether in their business model, capital strength, operational readiness, or governance practices. Although OSFI does not disclose ORR scores for individual institutions to the public, the framework itself reinforces confidence in the soundness of Canada’s financial system. It demonstrates that OSFI uses a transparent, risk-based methodology to oversee institutions and manage potential threats (Cube Global 2024).
The ORR system also signals a shift in regulatory focus toward modern and emerging risks. The inclusion of operational resilience as a core pillar underscores the increasing importance of technology, cyber risk, and third-party dependencies. Similarly, the emphasis on governance reflects OSFI’s expectation that senior leaders must take ownership of risk management and strategic decision-making. These elements position the ORR as a forward-looking tool that anticipates vulnerabilities rather than merely measuring them (McMillan LLP 2024).
Ultimately, the Overall Risk Rating is OSFI’s “risk thermometer”—a refined instrument for gauging the health and stability of Canada’s financial institutions. By expanding the scale and deepening the analysis, OSFI has enhanced its ability to detect and mitigate problems early. The ORR system aligns with a broader global trend toward dynamic and data-driven supervision, ensuring that Canadian financial oversight remains robust, adaptable, and resilient in an increasingly complex environment. Through this new framework, OSFI continues to uphold its mandate to protect depositors, policyholders, and pension plan members—and to maintain confidence in Canada’s financial system.
References
Cube Global. “Canadian Regulator Unveils Most Significant Change in 25 Years.” CUBE Global, April 2024. https://cube.global/resources/blog/canadian-regulator-unveils-most-significant-change-in-25yrs.
McMillan LLP. “OSFI Unveils New Supervisory Framework Effective April 2024.” McMillan LLP Publications, February 2024. https://mcmillan.ca/insights/publications/osfi-unveils-new-supervisory-framework-effective-april-2024/.
Office of the Superintendent of Financial Institutions. “Explaining OSFI’s Overall Risk Rating (ORR) System in Plain Language.” OSFI Knowledge Centre, April 2024. https://www.osfi-bsif.gc.ca/en/about-osfi/osfi-knowledge-centre/explaining-osfis-overall-risk-rating-orr-system-plain-language.
Office of the Superintendent of Financial Institutions. “Supervisory Framework.” OSFI Supervisory Practices, April 2024. https://www.osfi-bsif.gc.ca/en/supervision/supervisory-practices/supervisory-framework-0.
The World Law Group. “OSFI Releases New Framework to Modernize Financial Supervision.” World Law Group News, April 2024. https://www.theworldlawgroup.com/membership/news/osfi-releases-new-framework-to-modernize-financial-supervision.
Torys LLP. “Scaling Up Risks: OSFI’s New Supervisory Approach to Financial Institutions.” Torys LLP Publications, February 2024. https://www.torys.com/en/our-latest-thinking/publications/2024/02/osfis-new-supervisory-approach-to-financial-institutions.
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