Canada’s banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), has shifted its attention back to the growing influence of non‑bank financial institutions.
In its 2026-2027 Annual Risk Outlook, OSFI brings the potential risks of non-bank financial institutions back into focus, suggesting that activity outside the traditional banking system is becoming too significant to ignore1.
Key Points
- The OSFI watchlist is a list of potential financial system risks that regulators monitor to protect industry stability and consumers.
- OSFI has added non-bank financial institutions back to its latest risk watchlist due to growing activity outside traditional banking.
- Increased oversight could lead to stricter lending criteria and higher borrowing costs for consumers.
- Key risks include real estate lending pressure, rising exposure to non-bank lenders, and potential liquidity issues.
What Is The Risk Watchlist?
OSFI monitors banks, insurers, and other financial institutions in Canada. When the agency sees warning signs such as rising defaults, liquidity issues, or rapid growth in risky lending, it can put these issues on its risk watchlist.
How Does The Watchlist Impact Consumers?
Any potential risks on OSFI’s watchlist could eventually affect everyday consumers. This may include the following:
- Stricter lending criteria, making it more difficult to get a loan
- An increase in interest rates, making loans more expensive
- Protection against lender failures
What Has The OSFI Announced And What Does It Mean?
OSFI’s latest outlook highlights three major risks it believes could shape the stability of Canada’s financial system over the next year2:
- Real estate secured lending (RESL)
- Non‑bank financial institution (NBFI) exposure
- Liquidity and funding risks
Real estate and liquidity risks have been a concern for OSFI for years, but the environment around them has changed. Housing markets are still very tight in several regions across Canada, and global uncertainty continues to influence funding conditions.
Risks OFSI Is Looking At
Each year, OSFI takes a close look at the risks that Canada’s financial system is facing, and for 2026-2027, the regulator is focusing on the following. While these risks aren’t entirely new, OSFI notes that the environment around them has shifted in meaningful ways.
1. Real Estate Secured Lending (RESL) Risk
Housing‑related risk remains a central issue for OSFI, but the dynamics have changed. The regulator points out that mortgage and housing pressures have intensified in several regions across the country.
As borrowing costs increase and household budgets tighten, lenders face a higher chance of potential defaults in their mortgage portfolios.
OSFI continues to monitor how rising payments, slower economic growth, and regional housing imbalances could affect both borrowers and federally-regulated institutions.
Why Does This Matter For Consumers?
An increase in mortgage risks matter because they can cause lenders to tighten their approval criteria or raise borrowing costs, making it harder and more expensive for consumers to get a mortgage.
2. Non‑Bank Financial Institution (NBFI) Risk
One of the biggest developments in this year’s outlook is the return of NBFI risk to OSFI’s top‑risk list. The regulator notes that activity outside the traditional banking sector has expanded, especially in areas where non‑bank lenders and investment funds are taking on more borrowing.
This growth increases the potential for the broader financial system to become more exposed and vulnerable.
More specifically, exposures to private capital firms, hedge funds, and other non‑bank entities have become more significant for Canadian institutions. These markets tend to be less transparent, and many NBFIs rely heavily on leverage. If borrowing becomes more difficult or the markets become unstable, those problems can flow back into regulated financial institutions.
Why Does This Matter For Consumers?
Non‑bank lenders aren’t regulated as tightly as big banks. When OSFI steps in, it can help prevent lender insolvencies. This can reduce the chance that borrowers get negatively affected by lender collapse.
3. Liquidity & Funding Risk
Although funding conditions have remained relatively stable, OSFI warns that confidence in funding markets can change quickly. Geopolitical tensions and global economic uncertainty could influence how easily institutions access funding.
A big concern is how fast cash liquidity could happen. Even if everything looks stable right now, a sudden shock in the markets could make it hard for financial institutions to access the money they need.
That’s why OSFI is updating its liquidity rules to keep up with new risks, including upcoming changes focused on certain types of retail deposits.
Why Does This Matter For Consumers?
Sudden liquidity problems can make it harder for financial institutions to get the funding they need, which can lead to tighter lending conditions or higher borrowing costs for consumers. OSFI’s updated liquidity rules aim to reduce that risk, helping protect borrowers from disruptions that could affect mortgages, loans, and everyday banking.
How OFSI Is Responding To These Risks
To minimize these risks, OSFI is adjusting its regulatory approach to better match what’s happening in the economy right now. It’s also working on a new guideline to help financial institutions do a better job assessing and managing credit risk.
In addition to the main risks already mentioned, OSFI is also watching other areas that could affect financial stability, like commercial real estate, large corporate lending, cyber threats, technology issues, reliance on outside vendors, and the growing use of artificial intelligence.
Final Thoughts
OSFI’s focus for 2026-2027 is on a financial system that’s dealing with housing pressures, more activity happening outside traditional banks, and the risk that liquidity could change very quickly. While these risks aren’t new, the environment around them has changed, so OSFI is tightening its oversight and updating its tools to keep up. Overall, OFSI strives to stay strong in a shaky economy by acting early, paying close attention, and being ready to make changes as new issues come up.
References:
1Office of the Superintendent of Financial Institutions (OSFI). (2026, April 14). OSFI reintroduces non-bank financial institution risk in its latest Annual Risk Outlook. OSFI-BSIF.gc.ca
2Office of the Superintendent of Financial Institutions (OSFI). (2026, April 14). Annual OSFI’s Annual Risk Outlook – Fiscal Year 2026-2027. OSFI-BSIF.gc.ca
