The Bank of Canada thanks the International Monetary Fund (IMF) for undertaking its thorough and thoughtful pilot review of the Bank under the new Central Bank Transparency Code (CBTC). We welcome the publication of this final review report by the IMF Mission Team and the associated recommendations.
The IMF’s Executive Board approved the CBTC in July 2020. It corresponds to an update of the 1999 Monetary and Financial Policies Transparency Code and is aligned with the recommendations made in 2017 by the Joint Review of the Standards and Codes Initiative. The CBTC consists of five pillars, focused on transparency in governance, policies, operations, outcome of policies and operations, and official relations with government and other agencies.
The Bank is committed to constantly enhancing our transparency. While we regularly assess and evolve our own practices, including importantly through comprehensive reviews of our monetary policy framework every five years, we also respond to feedback from external stakeholders and take into account broader trends in the central banking community. The Bank therefore saw real value in participating in this comprehensive review, benefiting from a dedicated, thorough process led by independent experts that brought together a wide range of the Bank’s stakeholders to provide perspectives on our transparency practices.
The Bank is proud of its reputation as a respected, transparent central bank—one that serves as a model for others. We hope that through our participation, other central banks can use these findings to enhance their own transparency and will be encouraged to use the IMF’s CBTC and associated transparency review tools.
We also wish to commend the IMF Mission Team for their expertise, professionalism and collaboration in undertaking this review and in meeting with representatives of our Board of Directors, management, staff and external stakeholders (including academics, think tanks, parliamentarians, market participants and journalists). We wish to thank all our stakeholders for being generous with their time and candid in their feedback.
In its report, the IMF recognized that the Bank of Canada sets a high benchmark for transparency and that our practices are broadly aligned with expanded and comprehensive practices, as defined by the CBTC. We were pleased to hear that our stakeholders recognize this and view their central bank as an open, dynamic and transparent public institution.
In particular, the IMF report characterizes the Bank’s monetary policy framework as comprehensive, transparent and understandable. It notes that we have long been setting the standard for monetary policy communication—publishing regular information on our policy framework, decisions and operations that is clear and understandable. Our use of novel communication tools and channels as well as our active approach to listening to stakeholders were acknowledged as strengths.
The IMF also recognized the Bank’s transparency concerning our large-scale asset purchase programs, noting that we disclosed the reasoning, parameters and expected results and communicated regularly about them through the course of the COVID-19 pandemic.
Outside of monetary policy, the Bank was pleased to see that the IMF report commends us for communicating proactively regarding topical issues such as climate change and newly emerging areas such as a central bank digital currency. It also notes our transparent explanations of how these topics pertain to our legal mandate and objectives.
The IMF noted other highlights:
- The Bank’s overall transparency framework has been working well and has proved to be resilient. In particular, the key elements of transparency in the Bank’s governance structure are in place.
- The Bank discloses our financial stability policy framework, including objectives, strategy and instruments, as well as a comprehensive assessment of risks to financial stability.
- The Bank’s information related to our Emergency Liquidity Assistance and ongoing liquidity provision is comprehensive.
There were several key recommendations for improvement identified by the IMF. The Bank welcomes them and is committed to implementing them. Further detail on implementation plans and timelines is provided in the table below. The Bank was pleased to see that for many of the recommendations, the IMF recognized that effective underlying processes were already in place. These processes simply need to be more adequately demonstrated through transparent communications. The IMF recognized that the Bank has put greater emphasis on disclosure related to its current activities and less on areas where it has not recently been active (such as foreign exchange [FX] intervention, which it has not conducted since 1998). The IMF also recognized that in areas such as financial stability policy and FX reserve management, where the Bank’s responsibilities are shared with other authorities, decisions on disclosure are also shared.
Bank of Canada response to key recommendations from CBTC review
IMF recommendation 1: Transparency around review of Bank decisions
Providing transparency of the judicial review of BOC [Bank of Canada] decisions would benefit from disclosing information on the applicable review mechanisms for the BOC’s enforcement powers vis à vis its new function regarding supervision of retail payments providers.
Bank of Canada response
The Bank fully intends to provide appropriate disclosure and transparency around applicable review mechanisms for the Bank’s payment service provider enforcement powers as the retail payments supervision framework is developed.
The Retail Payment Activities Act (RPAA) establishes the legal framework for the Bank to supervise retail payment providers, including the Bank’s scope and powers. The RPAA was approved by Parliament on June 29, 2021, and is expected to come into force in stages.
Currently, regulations are being developed and, once finalized, will be published in the Canada Gazette. After the regulations are published, the Bank will issue guidance on specific topics related to the RPAA to further clarify its supervisory expectations.
Payment service providers will be required to register with the Bank and then must comply with requirements for operational risk management and safeguarding end-user funds.
The federal cabinet will decide how and when each provision of the RPAA will come into force and regulations are issued.
For more information on the Bank’s role of supervising payment service providers, see “Retail payments supervision” on the Bank’s website.
IMF recommendation 2: Transparency of risk management
The disclosure of the risk appetite statement and revised risk governance will boost the transparency of the risk management function.
Bank of Canada response
To further improve transparency related to the Bank’s risk management function, the Bank has recently published its revised risk appetite statement on the Bank’s website.
By the end of 2022, the Bank will ensure that the description of its risk governance arrangements accurately reflects current practices, including by clarifying the position of Internal Audit within this structure. To that end, the Bank will publish its Internal Audit Charter, approved by the Board’s Audit and Finance Committee, on the Bank’s website.
IMF recommendation 3: Transparency of audit mechanisms
Transparency of audit mechanisms would benefit from: (i) disclosing an external audit selection and rotation policy, including criteria for eligibility, independence and compliance with international standards; and (ii) clarifying the mandate and reporting structure of the internal audit function, and publishing the charter governing its operations.
Bank of Canada response
The Bank will publish on its website a document describing in detail the selection process for its external auditors. As described in the response to recommendation #2, the Bank will also publish its Internal Audit Charter, approved by the Board’s Audit and Finance Committee, on the Bank’s website. Both of these documents will be published by the end of 2022.
IMF recommendation 4: Monetary policy deliberations
Consider publishing a detailed summary of monetary policy deliberations by the Governing Council, as well as enhancing its communication on ex-post evaluation of the policy decisions, disclosing alternative policy scenarios, and improving the timeliness and accessibility of published macroeconomic projections.
Bank of Canada response
Over the past several years, the Bank has taken a number of steps to provide further transparency about its monetary policy decisions and deliberations. These include:
- providing a discussion of key issues that were relevant to Governing Council’s policy deliberations in the opening statements at Monetary Policy Report (MPR) press conferences.
- introducing economic progress report speeches one day after each non-MPR policy decision. These speeches are delivered by members of Governing Council and discuss key issues relevant to policy deliberations. The Governing Council member delivering the speech is also available to the press.
- including in the most recent renewal of Canada’s monetary policy framework, jointly agreed to by the Bank and the Government of Canada, the Bank’s consideration of a broad range of labour market indicators. The Bank will systematically report to Canadians on how labour market outcomes have factored into its monetary policy decisions.
The Bank has been actively considering additional mechanisms to enhance transparency around its monetary policy decisions, including the publication of a summary of deliberations after each policy decision. The IMF’s consultation with the Bank’s stakeholders and resulting recommendation that the Bank should proceed with publishing such a summary have been very helpful in the Bank’s considerations of this matter.
As such, the Bank is committing to publish a summary of monetary policy deliberations after each policy decision, starting in January 2023. These summaries will be published on the Bank’s website, with a lag of roughly two weeks following each policy decision.
With respect to enhancing communication on ex-post evaluation of policy decisions, the Bank has been focused on reviewing its actions and analysis during the COVID-19 pandemic. In its July 2022 MPR, the Bank published an assessment of the main factors behind inflation forecast errors during the pandemic period. In February 2022, Deputy Governor Tim Lane provided a backward-looking assessment of the Bank’s policy actions and analysis during the pandemic. Bank staff have also published assessments of the impact on market functioning and pricing of some of its asset purchase programs, such as the Bankers’ Acceptance Purchase Facility and Government of Canada Bond Purchase Program.
As the Bank proceeds with further internal work evaluating lessons learned from its pandemic actions, it is committed to being transparent about these evaluations with Canadians.
With respect to disclosing alternative policy scenarios, the Bank has published such scenarios on an ad-hoc basis, most recently in the July 2022 MPR with a risk scenario examining what could happen if a wage-price spiral occurred. The Bank is open to providing such alternative scenarios more regularly as part of its MPRs. But it would retain appropriate flexibility to do so when it makes good sense and when it can help audiences better understand the Bank’s reaction function around key risks. The Bank prefers this approach rather than committing to systematically providing such scenarios in each MPR.
Finally, with respect to the timeliness and accessibility of published macroeconomic projections, the Bank is actively seeking ways to make the information underlying its economic forecasts more accessible to its audiences. This has included the increasing use of digital charts and tables with accessible, downloadable data. As the Bank develops its MPR into a fully digital product by the end of 2023, improved accessibility and the ability to interact more fully with its projections will be key guiding principles.
The Bank also publishes, with a five-year lag, the detailed staff economic projections that are provided to Governing Council in preparation for monetary policy decisions.
IMF recommendation 5: Promote plain language financial stability messages
Promote the BOC’s financial stability messages more broadly to the general public by increasing the frequency of its communication using “plain language.”
Bank of Canada response
The Bank introduced the Financial System (FS) Hub in 2019—a digital magazine-style resource to provide timely, plain language analysis of financial stability issues. Admittedly, during the pandemic, prioritizing frequent financial stability messaging aimed at the general public shifted from the FS Hub to Governing Council speeches and media activities.
The Bank remains committed to ensuring that the FS Hub is the first stop for accessible, compelling Bank analysis of financial stability issues in a plain language format. As such, the Bank welcomes this recommendation as a reminder to shift the focus back to the FS Hub. In addition, the Bank is committed to improving how it communicates financial stability content to Canadians through its social media channels. As always, the Bank continually evaluates how its annual Financial System Review meets the needs of its audience, and it plans to review this publication in 2023.
IMF recommendation 6: Information on financial stability measures
Put in place a framework that provides information on how and to what extent financial stability measures, including market-wide exceptional liquidity support, contributed to achieving the BOC’s objectives such as restoring market functioning and the economy more broadly.
Bank of Canada response
The Bank has communicated how various policy measures helped achieve financial stability and broader economic objectives. This communication notably included how market-wide liquidity facilities contributed to the restoration of market functioning at the onset of the pandemic and how large-scale asset purchases supported the economic recovery.
This has been done through various speeches, through a recurring section of the MPR about the Bank’s balance sheet and through published staff assessments.
As the Bank proceeds with further internal work evaluating lessons learned from its pandemic actions, it is committed to being transparent about those evaluations with Canadians.
The Bank will consider this recommendation further in terms of whether a more formalized assessment framework is needed to communicate these evaluations.
IMF recommendation 7: Disclosure of AML/CFT controls
Consider the disclosure of its internal AML/CFT controls with appropriate confidentiality and security safeguards.
Bank of Canada response
The Bank agrees with the recommendation and will publish on its external website its policy on financial crimes and/or a statement about its internal anti–money laundering (AML)/countering the financing of terrorism (CFT) controls framework. This will be done by the end of 2022.
IMF recommendation 8: Information on committees and groups
Enhance the transparency framework by disclosing more information on the BOC’s involvement and its deliberation in various committees and groups, as well as bilateral collaboration with other federal and provincial regulatory authorities that are relevant for financial stability.
Bank of Canada response
The Bank welcomes this recommendation. It endeavours to be transparent with respect to committees related to financial stability that it leads or chairs. For example, the Bank has published terms of reference for both the Heads of Regulatory Agencies (HOA) Committee and Systemic Risk Surveillance Committee, and it recently published the Memorandum of Understanding for the Confidentiality of Information for the HOA Committee.
The Bank also chairs several industry groups, such as the Canadian Foreign Exchange Committee, the Canadian Fixed-Income Forum, the Canadian Alternative Reference Rate Working Group, and the Canadian Financial Sector Resiliency Group. Various terms of reference, meeting agendas, minutes and other background information for these groups are published on the Bank’s website.
The Bank works closely with other federal financial agencies, such as the Department of Finance Canada, the Office of the Superintendent of Financial Institutions, the Canada Deposit Insurance Corporation and the Financial Consumer Agency of Canada, to provide more information on the respective role of each organization and how they work together to support financial stability in Canada.
The Bank is committed to seeking ways to further improve transparency, while balancing the sensitivity of information and issues discussed, and respecting the need to have effective forums where consulting and providing advice can occur.
IMF recommendation 9: Disclosures on foreign exchange intervention and reserve management
Enhance the disclosures on foreign exchange intervention and reserve management by releasing information on the BOC’s involvement in various committees and groups, and on the BOC’s role in the context of foreign reserve and fund management. In context of FX intervention, clear communication on the rationale for instrument choice would enhance transparency.
Bank of Canada response
The Bank conducts foreign reserve management on behalf of the Government of Canada, according to the government’s strategy and policies. Comprehensive information is available on the Department of Finance Canada’s website about the government’s funds management framework and policies and about the role of the Bank of Canada as fiscal agent.
Similarly, the Bank discloses its role with respect to foreign exchange intervention on behalf of the government and makes clear that any intervention is governed by an intervention policy, which the government establishes in close consultation with the Bank.
The Bank does not view adding more information on this function a priority, given that:
- the current policy to intervene is on a discretionary, rather than systematic, basis and only in exceptional circumstances
- the Bank last intervened in foreign exchange markets to affect movements in the Canadian dollar in September 1998
IMF recommendation 10: Accessibility of information
Improve the accessibility of information on topics such as risk management, monetary policy instruments, the policy on FX interventions, and financial stability research and analysis.
Bank of Canada response
The Bank is committed to constantly seeking ways to improve the accessibility and navigational ease of its website, and it welcomes the suggestions contained in this recommendation.
The Bank has also been prioritizing efforts to improve the searchability of its content on the internet, recognizing that many users use internet search tools to find Bank content, rather than coming directly to the website. And it is increasingly using social media platforms to disseminate its content.
Once again, the Bank of Canada sincerely thanks the IMF Mission Team for undertaking this comprehensive review. The Bank places a premium on transparency—both to reinforce our accountability to Canadians and to enhance our effectiveness. To that end, this independent review complements our own internal assessments and forms a welcome part of our ongoing efforts toward continuous improvement in our transparency practices. Having the IMF engage directly with our external stakeholders to get their feedback was extremely valuable. The Bank was reassured that we are seen to set a high standard of transparency. We are committed to implementing the main enhancements recommended by the IMF.
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