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2007-08
Departmental Performance Report
Office of the Superintendent of Financial Institutions Canada
The original version was signed by
The Honourable James M. Flaherty, P.C., M.P.
Minister of Finance
Table of Contents
I.1 Message from the SuperintendentI.2 Management Representation Statement
I.3 Summary Information
I.3.1 OSFI's Reason for Existence
I.3.2 Program Activity Architecture
I.3.3 Total Financial and Human Resources
I.3.4 Priorities
I.3.5 Program Activities by Strategic Outcome
I.4 Summary of Departmental Performance
I.4.1 Operating Environment
I.4.2 Context
I.4.3 Overall Performance
SECTION II: ANALYSIS OF PROGRAM ACTIVITIES BY STRATEGIC OUTCOME
II.1 Strategic OutcomesII.2 Program Activities
II.3 Monitoring Mechanisms and Performance
II.4 Detailed Analysis of Performance
SECTION III: SUPPLEMENTARY INFORMATION
III.1 Links to Government of Canada's OutcomesIII.2 Financial and Other Tables
Table 1: Comparison of Planned to Actual Spending
Table 2: Voted and Statutory Items
Table 3: Sources of Respendable and Non-Respendable Revenue
Table 4A: User Fees Act
Table 4B: Policy on Service Standards for External Fees
Table 5: Response to Parliamentary Committees and External Audits
Table 6: Internal Audits and Evaluations
Table 7: Travel Policies
Table 8: Financial Statements
SECTION IV: OTHER ITEMS OF INTEREST
IV.1 Organizational InformationIV.2 Internal Services
IV.3 Program Support Priorities
IV.4 Government Priorities and Other Initiatives
IV.5 Other References
SECTION I: OVERVIEW
I.1 Message from the Superintendent
I am pleased to present the Departmental Performance Report (DPR) for the Office of the Superintendent of Financial Institutions (OSFI) for the period ending March 31, 2008.
This report focuses on the benefits of OSFI's contribution to Canadians and to Canada�s financial and economic strength. It concentrates primarily on our two strategic outcomes: to regulate and supervise financial institutions and private pension plans so as to contribute to public confidence; and to contribute to public confidence in Canada's public retirement income system. Both strategic outcomes support the Government of Canada�s desired outcomes of strong economic growth and income security for Canadians. In addition, OSFI�s technical assistance program, which helps emerging market economies improve their financial institution supervisory systems, supports the government�s priority for a safe and secure world through international co-operation.
This past year was a tumultuous one for the financial sector, beginning with a downturn in the U.S. sub-prime mortgage market and quickly spreading to financial markets around the globe which are inextricably linked. Capital and credit markets seized up, some large financial institutions in other countries were taken over, and around the world losses were very real.
Canada�s banks entered this period very well capitalized, which has helped them weather the storm relatively well to date; however, there have been some losses at Canadian banks which, in some cases, were significant. As well, there was a major problem in the Canadian non-bank asset-backed commercial paper (ABCP) market. The ABCP issue led to significant public discussion over the year regarding liquidity lines to ABCP conduits and OSFI's role. We explained that we are responsible for assessing bank solvency, that OSFI capital rules apply to Canadian banks only (and not to other companies at the centre of the non-bank ABCP market or to the mainly foreign banks they dealt with), that our capital rules were prudent and necessary for bank solvency, and that securities commissions have a mandate to protect investors in ABCP securities.
Change is constant, and the financial landscape will continue to shift in ways that are not fully predictable at this time. That is why cushions are so important, and why OSFI focuses on capital, liquidity and stress testing at financial institutions. As well, in the spring of 2007, OSFI placed more focus on enhancing our ability to identify risks. Initiatives have included the creation of an internal Emerging Risk Committee and more interaction with international supervisors, so as to better assess the impact of changing risk on financial institutions and pension plans.
One of OSFI's priorities has been the successful implementation of the Basel II Capital Accord. The revised Basel Capital Framework (Basel II) became effective for Canadian banks on November 1, 2007. It will play a key role in strengthening risk management practices at banks. Efforts are now underway by the Basel Committee to update parts of Basel II for which capital was insufficient, based on knowledge gained as a result of the recent turmoil.
The Accounting Standards Board (AcSB) has decided that publicly accountable enterprises will be required to move to International Financial Reporting Standards (IFRS) as of 2011. IFRS implementation is an ongoing priority for OSFI to ensure consistent reporting for the purpose of reliable comparisons and effective monitoring of issues of safety and soundness. Work, both domestically and internationally, towards the implementation of IFRS is ongoing, and OSFI will continue to add a Canadian voice in international efforts to develop guidance related to the IFRS regime. Beginning in 2008-2009, OSFI will conduct extensive consultations with federal financial institutions regarding the effects of adopting IFRS, so as to work towards a smooth implementation.
Another of our priorities is to revise the current Minimum Continuing Capital and Surplus Requirements (MCCSR) regime to reflect IFRS developments, and to adopt more risk-based approaches as was done for banks under the Basel Accord, after consultation with the life insurance industry.
Reviews performed by the Office of the Chief Actuary (OCA) indicate that Canada has a public pension system that is expected to be sustainable and affordable well into the future. During 2007-2008, the OCA released Actuarial Study Number 6 on the Optimal Funding of the Canada Pension Plan (CPP) which examined the current funding approach of the Canada Pension Plan in terms of its optimality compared to other funding approaches. This, and future studies, seek to ensure the actuarial soundness of Canada's public retirement system.
In its regulation of private pension plans, OSFI has begun a review of its existing systems and processes with an eye to increasing efficiency and effectiveness. While there is minimal volatility in the private pension sector currently, we must continue to be vigilant and knowledgeable about techniques to manage the potential risks volatility can pose.
Looking ahead, we will continue to work to maintain our strong international reputation, as confirmed by an International Monetary Fund Financial Sector Assessment Program (FSAP) Report released in February. A major achievement in 2007-2008, the FSAP report noted that Canada's �financial stability is underpinned by�strong prudential regulation and supervision.� OSFI will also face the effects of a softening global economy, which will have an impact on the financial institutions and private pension plans that OSFI oversees. OSFI's initiatives to enhance risk identification, as well as an announced ten percent increase in human resources will help ensure we are prepared to deal with any issues.
Virtually all of OSFI's revenues are derived from industry. Because OSFI places significant reliance on the internal processes of the financial institutions it regulates, OSFI's costs are generally lower than regulatory bodies that do not use such systems. OSFI will continue to hire and retain the staff necessary to address the complex issues inherent in the financial services environment, and to better enable us to monitor and assess risk in the financial institutions and pension plans we regulate.
OSFI will continue to play a pivotal role in the Canadian financial services industry, and to assess and measure our performance to retain and enhance our reputation as a world leader in financial regulation and supervision. I am confident that we will continue to contribute to the confidence Canadians rightly have in their financial system.
I.2 Management Representation Statement
I.3 Summary Information
I.3.1 OSFI's Reason for Existence
Mandate
OSFI's legislated mandate, established in 1996, is to:
- Supervise federally regulated financial institutions and private pension plans to determine whether they are in sound financial condition and meeting minimum plan funding requirements respectively, and are complying with their governing law and supervisory requirements;
- Promptly advise institutions and plans in the event there are material deficiencies and take, or require management, boards or plan administrators to take, necessary corrective measures expeditiously;
- Advance and administer a regulatory framework that promotes the adoption of policies and procedures designed to control and manage risk; and
- Monitor and evaluate system-wide or sectoral issues that may impact institutions negatively.
In meeting this mandate, OSFI contributes to public confidence in the financial system.
OSFI's legislation also acknowledges the need to allow institutions to compete effectively and take reasonable risks. It recognizes that management, boards of directors and plan administrators are ultimately responsible for setting strategy and managing the financial institutions and pension plans, and that they can fail.
The Office of the Chief Actuary (OCA), which is an independent unit within OSFI, provides actuarial services to the Government of Canada.
I.3.2 Program Activity Architecture
I.3.3 Total Financial and Human Resources
The tables below identify OSFI's financial and human resources, planned and actual, for the 2007-2008 fiscal year. OSFI's actual number of average full-time equivalents (FTEs) for the year was 459 or two less than planned and 13 more than the previous year1.
2007-2008 Financial Resources ($ millions)
| Planned | Authorities | Actual |
| $90.5 | $90.5 | $85.7 |
2007-2008 Human Resources (Average Full-Time Equivalents)
| Planned | Actual | Difference |
| 461 | 459 | 2 |
I.3.4 Priorities2
| Name | Type | Performance Status |
| Management Priorities | ||
| A. Readiness Planning | New | Successfully met |
| B. Basel II | Previously committed | Successfully met |
| C. Financial Sector Assessment Program (FSAP) / Financial Action Task Force (FATF) | New | Successfully met |
| D. Accounting Standards | Previously committed | Successfully met |
| E. Minimum Continuing Capital Surplus Requirement (MCCSR) |
New | Successfully met |
| F. Pension Systems and Processes | New | Successfully met |
| G. Integration of Human Resources Planning into Business Planning | New | Successfully met |
| Ongoing Program Priorities | ||
| 1. Risk Assessment and Intervention | Ongoing | Successfully met |
| 2. Rule Making | Ongoing | Successfully met |
| 3. Approvals | Ongoing | Successfully met |
| 4. Regulation and Supervision of Federally Regulated Private Pension Plans | Ongoing | Successfully met |
| 5. International Assistance | Ongoing | Successfully met |
| 6. Office of the Chief Actuary (OCA) | Ongoing | Successfully met |
| Ongoing Program Support Priorities | ||
| 7. High quality internal governance and related reporting. | Ongoing | Successfully met |
| 8. Resources and infrastructure necessary to support supervisory and regulatory activities. | Ongoing | Successfully met |
I.3.5 Program Activities by Strategic Outcome
| Expected Results | Performance Status | 2007-2008 ($millions) |
Links to the following priorities | ||
| Planned Spending |
Actual Spending |
||||
Strategic Outcome 1: To regulate and supervise to contribute to public confidence in Canada's financial system and safeguard from undue loss. |
|||||
| Program Activity 1.1 Regulation and Supervision of Federally Regulated Financial Institutions |
|||||
|
Accuracy of risk assessment and early intervention; effective support and facilitation for Basel II implementation. | Successfully met | $53.5 | $51.4 | Management Priorities A, B, C and G |
|
Balanced regulatory framework; prudent capital rules and regulatory reporting and alignment with other jurisdictions. | Successfully met | $14.7 | $14.2 | Management Priorities D, E and G |
|
Prudentially sound and responsive approvals process. | Successfully met | $7.7 | $7.2 | Management Priority G |
| Program Activity 1.2 Regulation and Supervision of Federally Regulated Private Pension Plans (Ongoing Program Priority 4) |
Accuracy of risk assessment and early intervention. | Successfully met | $6.5 | $5.8 | Management Priorities F and G |
| Program Activity 1.3 International Assistance (Ongoing Program Priority 5) |
Improved supervisory and regulatory practices for foreign regulators. | Successfully met | $2.0 | $2.0 | Management Priority G |
Strategic Outcome 2: To contribute to public confidence in Canada's public retirement income system. |
|||||
| Program Activity 2.1 Office of the Chief Actuary (Ongoing Program Priority 6) |
Expert and timely actuarial valuations and advice. | Successfully met | $6.1 | $5.1 | Management Priority G |
Note: Internal Services, per OSFI's Program Activity Architecture (PAA) are considered part of every Program Activity and are linked to OSFI's ongoing Program Support Priorities 7 and 8.
I.4 Summary of Departmental Performance
I.4.1 Operating Environment
OSFI was created in 1987 through the enactment of the Office of the Superintendent of Financial Institutions Act (OSFI Act). The OSFI Act provides that the Superintendent is solely responsible for exercising the authorities provided by the financial legislation, and is required to report to the Minister of Finance from time to time on the administration of the financial institutions� legislation. The Superintendent periodically appears before various House of Commons and Senate Committees.
The Office of the Chief Actuary (OCA) was created within the organization as an independent unit to effectively provide actuarial and other services to the Government of Canada and provincial governments who are Canada Pension Plan (CPP) stakeholders. The Chief Actuary is solely responsible for the content and the actuarial opinions in reports prepared by the OCA. The Chief Actuary periodically appears before various House of Commons and Senate Committees.
Key Partners
OSFI works with a number of key partners. Together, these organizations constitute Canada's network of financial regulation and supervision and provide a system of depositor and policyholder protection.
| Regulatory and Supervisory Framework Roles | |
| Government Organization | Role |
| Department of Finance |
|
| Canada Deposit Insurance Corporation |
|
| Bank of Canada |
|
| Financial Consumer Agency of Canada |
|
| Financial Transactions and Reports Analysis Centre of Canada |
|
OSFI collaborates with provincial and territorial supervisory and regulatory agencies, as necessary, and with private-sector organizations and associations, particularly in rule making.
OSFI plays a key role in international organizations such as the Basel Committee on Banking Supervision, the Joint Forum, the Financial Stability Forum, the International Association of Insurance Supervisors, the Integrated Financial Supervisors, the Association of Supervisors of Banks of the Americas, the International Actuarial Association, and the Groupe des superviseurs bancaires francophones.
Regulated Entities
OSFI is the primary regulator of financial institutions and private pension plans operating in Canada under federal jurisdiction. OSFI supervises and regulates all federally incorporated or registered deposit-taking institutions, life insurance companies, property and casualty insurance companies, and federally regulated private pension plans. These 1,809 organizations managed a total of $3,823 billion of assets (as at March 31, 2008).
Federally Regulated Financial Institutions and Private Pension Plans and Related Assets
| Deposit- Taking Institutions | Life Insurance Companies | Property and Casualty Companies | Federally Regulated Private Pension Plans | Total | |
| Number of organizations | 151 | 112 | 196 | 1,350 | 1,809 |
| Assets | $3,103 billion | $479 billion | $109 billion | $132 billion | $3,823 billion |
OSFI also undertakes supervision of provincially incorporated financial institutions on a cost recovery basis under contract arrangements with some provinces. Additional details may be found on OSFI's Web site under About OSFI/ Who We Regulate.
Cost Recovery
OSFI recovers its costs from several revenue sources. OSFI is funded mainly through asset-based, premium-based or membership-based assessments on the financial institutions and private pension plans that OSFI regulates and supervises, and a user-pay program for selected services.
OSFI also receives revenues for cost-recovered services. These include revenues from the Canadian International Development Agency (CIDA) for international assistance; revenues from provinces for which OSFI does supervision of their financial institutions on contract; and revenues from other federal agencies for which OSFI provides administrative support.
Overall, OSFI recovered all its expenses for the fiscal year 2007-2008.
The Office of the Chief Actuary is funded by fees charged for actuarial services relating to the Canada Pension Plan, the Old Age Security program, the Canada Student Loans Program and various public sector pension and benefit plans, and by a parliamentary appropriation.
For further information, refer to OSFI's Annual Report, which is published on OSFI's web site under Organization / Reports/ Annual Reports.
I.4.2 Context
Financial and Competitive Environment
Credit market issues dominated the global financial landscape in 2007. The environment has been difficult, particularly for global banks, and the adjustment period could be prolonged.
Starting in the summer of 2007, accumulating losses on U.S. subprime mortgages triggered widespread disruption to the global financial system. Large losses were sustained on complex structured securities. Institutions reduced leverage and increased demand for liquid assets. Many credit markets became illiquid, hindering credit extension. More than eight months after the start of the market turmoil, the balance sheets of financial institutions remain burdened by assets that suffered declines in value and are further affected by vanishing market liquidity. While Canadian banks have not been immune from these developments, as a group they have faired relatively well.
Overall, the financial performance of the major Canadian banks for 2007 was relatively strong, however, a few banks took material write downs and were pressured to bring securitized assets back on their books, both in the fourth quarter of 2007 and the first quarter of 2008.
When the turmoil in the asset-backed commercial paper (ABCP) markets began in August 2007, OSFI moved to assess the impact on all federally regulated institutions (and pension plans). Very few institutions OSFI oversees had material exposure to non-bank ABCP, which was the most affected. In terms of the size of the non-bank market, according to figures provided in the Bank of Canada's December 2007 issue of the Financial System Review, non-bank asset backed commercial paper, as at July 2007 comprised about $35 billion, versus a total ABCP market of $116 billion.
Average return on equity for major Canadian banks in 2007 was 21.2%, down from a high of 23.2% in 2006. The average ratio of total capital to risk-adjusted assets was 11.9%, well above the Bank for International Settlements� 8% minimum threshold and OSFI's 10% target. These high levels of capital provide a buffer against future adverse economic or financial developments.
With overall strong capital and returns, the life insurance industry was in a healthy position at the close of 2007-2008; however, it faces challenges associated with softening global growth, corrections in equity markets and the possibility of an extended low interest rate environment. Average return on equity was 13.4%, down modestly from 13.7% the year before. OSFI's supervisory target ratio for Minimum Continuing Capital and Surplus Requirements (MCCSR) for Canadian companies is set at 150%. The average MCCSR ratio for Canadian life insurers in 2007 was 218%, significantly above OSFI's target ratio, indicating a well capitalized industry.
After several years of strong operating results, the property and casualty (P&C) insurance sector is starting to show signs of stress. Although 2007 industry results were strong, most indicators pointed to a year-over-year decline in performance. Industry return on equity was 16.1%, down from 20.3% the previous year. A principle measure of profitability for the industry is the combined ratio, which measures claims expenses to premium income � a result under 100% indicates that premium income exceeds claims expenses (before associated investment returns). In 2007, the combined ratio increased from 88.6% to 91.9%. Although increasing, the result indicates that the core business of the P&C industry continues to operate profitably.
Favourable market conditions through 2006 and into 2007 lessened funding pressures for many private pension plans going into 2007. The downward pressure on long-term interest rates appeared to ease. However, at year-end the liability discount rate was only marginally higher than a year earlier, and with the emergence of market turbulence in mid-2007, average investment returns for 2007 as a whole were very modest. The returns were characterized by wide divergence across individual plans, depending on their investment strategy and asset mix. As a result of these developments, funding pressures on pension plans have not disappeared.
Policy Environment
Work has begun at both the industry and regulatory level in Canada and globally to analyze lessons learned, and to develop guidance and processes that would restore stability and investor confidence in the financial marketplace. Canadian government agencies met regularly to discuss impacts on industry and institutions, and the Bank of Canada extended liquidity to the system.
The Superintendent worked with international colleagues to draft the Financial Stability Forum (FSF) report on Enhancing Market and Institutions Resilience. The G7 Finance Ministers and Central Bank Governors established the FSF in 1999 to promote international financial stability through enhanced information exchange and international cooperation in financial market supervision and surveillance.
The FSF report includes over 60 recommendations that have been endorsed by the G-7 Finance Ministers, and covers key issues such as capital and liquidity for banks, as well as the need for more transparency. Much has already been done by central bankers, regulators and accounting standard setters to identify the causes of the global market turmoil, and to identify what should be done, but the implementation of the FSF report recommendations will take considerable effort and will go a significant way toward strengthening the global financial system. OSFI is currently working with other regulatory agencies to implement these recommendations in Canada.
Revisions to Financial Institutions Legislation
An Act to amend the law governing financial institutions and to provide for
related and consequential matters received Royal Assent in March 2007.
While the bulk of its provisions have been implemented, in 2007-2008 OSFI
continued to work closely with the Department of Finance on the development of
regulations in the context of the implementation of certain aspects of the Act.
Anti-Money Laundering and Anti-Terrorism Financing Initiatives
Extensive changes to the Proceeds of Crime (Money Laundering) and Terrorist
Financing Act were enacted by Parliament in 2007-2008. Most of the
regulatory changes are to take effect in June 2008. OSFI amended its assessment
methodology to take these new requirements into account.
I.4.3 Overall Performance
Despite new challenges presented by volatility in the global markets, in 2007-2008 OSFI was nonetheless successful in meeting the expectations flowing from all of its priorities. In addition to six ongoing priorities, OSFI's 2007-2008 Report on Plans and Priorities (RPP) identified seven management priorities. While a detailed analysis of OSFI's performance against all priorities is found in Section II, the following highlights some of OSFI's accomplishments for the reporting period.
Management Priorities
OSFI's ability to achieve its mandate depends on the timeliness and effectiveness with which it identifies, evaluates, prioritizes, and develops initiatives to address areas where its exposure to risk is greatest. In the RPP for 2007-2008, OSFI had identified several external and internal risks, and throughout the year took steps to address these risks.
Readiness Planning
OSFI took steps to ensure it can respond adequately to shocks as a result of a
crisis or a pandemic, and cyclicality in the industry. Among other steps, OSFI:
surveyed business resumption plans of federally regulated financial
institutions; completed resource analysis and planning to enable OSFI to address
the growing risk profiles across the industries it regulates; conducted a
table-top exercise with OSFI senior executives to test their command and control
structure while relocated to a simulated backup Emergency Command Centre.
Basel II Capital Accord
The revised Basel Capital Framework (Basel II) became effective for Canadian
banks on November 1, 2007. OSFI gave approval to a number of banks to operate
under the Advanced Internal Ratings Based approach under Basel II, and assisted
smaller deposit-taking institutions to transition successfully to the
Standardized approach for credit risk. OSFI also reviewed its practices to align
with Basel II requirements, specifically by revising Capital Adequacy
Requirements (CAR) Guidelines to incorporate a number of clarifications raised
by industry, and by issuing relevant advisories to update the CAR Guidelines in
response both to market developments and to accounting, legislative and other
changes.
Accounting
The Canadian Accounting Standards Board has decided to adopt International
Financial Reporting Standards (IFRS) by 2011 as the basis for financial
reporting by public companies in Canada. This will have a significant impact on
both OSFI and the institutions it regulates. OSFI developed a detailed project
plan and team to guide internal implementation efforts as well as to help assess
the effects moving to IFRS will have on institutions and the need for new or
modified guidance from OSFI. OSFI also worked closely with key national and
international organizations to present its views on these issues.
Minimum Continuing Capital Surplus Requirement (MCCSR)
OSFI continued its efforts towards the adoption of revised MCCSR rules by
working with the life insurance industry through the MCCSR Advisory Committee
(MAC) to develop and incorporate more advanced risk measurement techniques into
the MCCSR. Also through MAC, OSFI issued a paper outlining the vision for a new
more risk-sensitive capital framework for life insurers. The MCCSR Advisory
Committee's draft vision paper may be found on OSFI's website under
Regulated Entities / Life Insurance Companies and Fraternals / Drafts and
Consultation Papers.
Financial Sector Assessment Program (FSAP) Update / Financial Action Task
Force (FATF) Mutual Evaluation
During 2007-2008, OSFI participated in two important reviews. The International
Monetary Fund (IMF) conducted a Financial Sector Assessment Program (FSAP)
Update of Canada, and the FATF conducted an assessment of Canada's anti-money
laundering and anti-terrorist regimes. The IMF's FSAP report on Canada found
OSFI to be compliant with all four Core Principles of Supervision assessed and
noted that the Canadian financial sector is strong and its major banks would be
able to withstand sizeable shocks to the financial system. The FATF mutual
evaluation report recognized the good supervisory coverage of the banking and
federally regulated trust companies by OSFI. The FATF mutual evaluation report
(MER) also recognized OSFI's role in Canada's anti-money
laundering/anti-terrorism financing (AML/ATF) regime as being effective.
People Risks
Attracting, motivating, developing and retaining skilled staff is a top priority
for OSFI, particularly the ability to attract and retain staff whose skills are
in demand in an increasingly complex and dynamic financial sector. OSFI took
steps to put in place better long-range, integrated planning, including the
creation of a new supervisory team based in Ottawa to assist the Toronto-based
Financial Institutions Group in managing the workload created by the growing
risk profiles across OSFI's regulated industries, and new positions for
2008-2009 to increase capacity and complement targeted technical skills in
anticipation of emerging risks. OSFI also continued to recruit specific subject
matter experts.
Pension Systems and Processes
The external environment for pensions includes increasingly complex work and
more litigation. This demands greater skill on the part of OSFI staff who
require the support of an upgraded pensions information system. OSFI refined its
internal processes to improve efficiency and timeliness of pension approvals,
and initiated Information Technology system enhancements to further support
approval processes. OSFI also continued development of a new risk assessment
framework for pension plans, to be followed by enhancements to the pension IT
system to support efficient supervisory processes.
Ongoing Program and Support Priorities
In 2007-2008, OSFI's risk and intervention activities were largely driven by developments in the market place. As a result, a major focus for OSFI was on managing the impact of volatile credit and financial markets on federally regulated financial institutions� (FRFIs) liquidity and capital levels. In addition to working with international colleagues to draft the Financial Stability Forum report on Enhancing Market and Institutional Resilience, and the Basel Committee on Banking Supervision's announced steps to strengthen the resilience of the banking system,OSFI was proactive in intervening with several institutions in order to improve risk management and governance practices. OSFI also maintained up-to-date risk profiles of all federally regulated financial institutions � a low or moderate Composite Risk Rating was assigned to 94% of all rated institutions for 2007-2008.
OSFI continued to evolve the regulatory framework for financial institutions it supervises. Some of the key achievements for this year were: updates to guidelines and advisories related to the measurement of capital and capital adequacy of banks and trust and loan companies; engaging in discussions with the life insurance industry on how to update the current approach to measuring life insurance regulatory capital requirements for the new accounting standards that cause material changes to balance sheet items used in the measurement of risks captured in the requirements; and releasing Guideline E-17, renamed as Background Checks on Directors and Senior Management of Federally Regulated Entities (FREs). Guideline E-17 is consistent with international developments and with regulatory standards in comparable foreign jurisdictions.
To align with, and respond to, the changing external environment for pensions, OSFI continued a review of the pension risk assessment framework begun in 2006-2007 in order to strengthen the risk-focused approach to pension supervision and to direct our resources most effectively. In addition, OSFI worked with the Department of Finance to develop legislation and regulations for phased-in retirement, and added resources and introduced more streamlined processes to improve timeliness of its pensions approvals process while ensuring complex transactions are carefully considered.
In the international arena, OSFI continued its work with foreign regulators and sharing its expertise in improvement of supervisory and regulatory practices in many countries. Significant inroads made into African nations last year were strengthened as close working relationships developed with Ghana, Nigeria and Malaysia to support these jurisdictions� transition to risk-based supervision for financial institutions. As well, CIDA's performance review of OSFI's International Advisory Group (IAG) indicated that training workshops were seen to be useful and that there have been generally sustainable impacts on capacity building in countries where IAG has established continuing relationships.
Finally, OSFI, through the Office of the Chief Actuary (OCA), continued to provide its expert actuarial valuation and advice to the Federal Government for sound financial management of the Public Sector Pension and Insurance Programs. The OCA completed actuarial reports on the Canada Pension Plan, the Canada Student Loans Program, the pension plans for the Members of Parliament and Federally Appointed Judges, and on the benefit plan financed through the Royal Canadian Mounted Police (dependants) Pension Fund. These reports provide actuarial information to decision-makers, Parliamentarians and the public, increasing transparency and confidence in the retirement income system. An external peer review � the CPP Actuarial Review Panel � confirmed that the 23rd CPP Actuarial Report met high professional standards and was based on reasonable assumptions to provide sound actuarial advice to Canadians.
Internal Audits and Reviews
OSFI has an independent internal audit function that objectively reviews, monitors and analyzes OSFI's key activities. During 2007-2008, a number of reviews were completed in which areas for improvement were identified. Internal audit reports, which include a management response, are posted on OSFI's website under Organization / Reports / Internal Audit Reports.
The Internal Audit Report on the Staffing Process indicated that the staffing framework is fundamentally sound, but identified areas where certain policies, guidance, and processes needed improvement to ensure the staffing action activities and files fully support the decisions made. In response to these recommendations, an improvement program was implemented to address all concerns identified.
The Internal Audit Review Report on OSFI's Planning Activities and Processes presented an assessment of OSFI's current planning process and tools, and recognized the significant enhancements that OSFI implemented or initiated during the 2008-2011 planning cycle. A multi-year improvement program was established to address the report's findings and recommendations.
A review of the Financial Institutions Group � Deposit Taking Institutions (FIG-DTI) assessed whether the supervision of the institutions in this group was risk-focused and whether the resulting risk assessments were reasonable and well supported. The report concluded that FIG-DTI staff demonstrated a sound understanding of the business activities of their institutions and rated inherent risks in these activities. However, the review found that the application of the methodology requires improvement in a number of areas. An improvement program has been developed.
The objective of a review of the Supervision Support Group Credit Risk Department was to assess whether OSFI's Supervisory Methodology and related practices were consistently applied in the supervisory process followed by the Credit Risk Department (CRD) in supporting the supervisory teams' examination of their credit activities. An improvement program has been established to address the recommendations flowing from the review.
Informing Canadians
OSFI remains committed to informing Canadians about its activities and plans, and to contributing to a dialogue on key issues facing the financial sector and pension plans.
In 2007-2008, OSFI made public several reports and published its external newsletter, The Pillar, three times. OSFI served some 1,215,595 visitors to the Web site; handled 12,916 public enquiries; responded to 102 enquiries from Members of Parliament, and replied to 149 enquiries from representatives of the news media.
OSFI is recognized as an international model for prudential regulators and receives many requests to address conferences and other events. In response, the Superintendent and other senior OSFI officials delivered over 35 presentations to industry and regulatory forums across Canada and internationally. The Superintendent also made presentations to Parliamentary Committees including the House of Commons Standing Committee on Finance and the Senate Standing Committee on Banking, Trade and Commerce. Most speeches and presentations are available on OSFI's Web site under Organization / Speeches.
SECTION II: ANALYSIS OF PROGRAM ACTIVITIES BY STRATEGIC OUTCOME
II.1 Strategic Outcomes
Primary to OSFI's mission and central to its contribution to Canada's financial system are two strategic outcomes:
- To regulate and supervise to contribute to public confidence in Canada's financial system and safeguard from undue loss. OSFI safeguards depositors, policyholders and private pension plan members by enhancing the safety and soundness of federally regulated financial institutions and private pension plans.
- To contribute to public confidence in Canada's public retirement income system. This is achieved through the activities of the Office of the Chief Actuary, which provides accurate, timely advice on the state of various public pension plans and on the financial implications of options being considered by policy makers.
II.2 Program Activities
Three program activities support OSFI's first strategic outcome to regulate and supervise financial institutions and private pension plans so as to contribute to public confidence.
-
Regulation and supervision of federally regulated financial institutions (FRFIs)
This program activity is central to the achievement of OSFI's mandate to protect the rights and interests of depositors and policyholders and advance a regulatory framework that contributes to public confidence in the Canadian financial system. The three sub-activities of this program are:- Risk assessment and intervention includes activities to monitor and supervise financial institutions, monitor the financial and economic environment to identify emerging issues and intervene in a timely way to protect depositors and policyholders, while recognizing that all failures cannot be prevented.
- Rule making encompasses the issuance of guidance and regulations, input into federal legislation affecting financial institutions, contributions to accounting, auditing and actuarial standards, and involvement in a number of international rule-making activities.
- Approvals of certain types of actions or transactions undertaken by regulated financial institutions. This covers two distinct types of approvals: those required under the legislation applying to financial institutions and approvals for supervisory purposes.
There is a strong interrelationship among the three parts of this supervisory and regulatory program. The supervisory function relies on an appropriate framework of rules and guidance. In some situations, regulatory approval is required because a proposed transaction may significantly affect an institution's risk profile. Approving such a change involves both a supervisory and regulatory assessment. Supervisory experiences often identify areas where new or amended rules are needed.
As identified in OSFI’s mandate, OSFI must also recognize the need for financial institutions to compete effectively. The sustainability and success of regulated institutions is important for the long-term safety and soundness of the financial system. As a result, OSFI needs to strike an appropriate balance between promoting prudence and allowing financial institutions to take reasonable risks in order to compete and prosper.
- Regulation and supervision of federally regulated private pension plans
This program incorporates risk assessment, intervention, rule making and approvals related to federally regulated private pension plans under the Pension Benefits Standards Act, 1985. -
International Assistance
OSFI supports initiatives of the Government of Canada to assist emerging market economies to strengthen their regulatory and supervisory systems. This program incorporates activities related to providing help to selected countries that are building their supervisory and regulatory capacity. This program is largely funded by the Canadian International Development Agency and is carried out by OSFI directly and through its participation in the Toronto International Leadership Centre for Financial Sector Supervision. This involvement strengthens the financial system regulatory and supervisory regimes in those jurisdictions.
A fourth program activity, the Office of the Chief Actuary, supports OSFI’s second strategic outcome: to contribute to public confidence in Canada’s public retirement income system.
-
Office of the Chief Actuary (OCA)
The OCA provides a range of actuarial services, under legislation, to the Canada Pension Plan (CPP) and some federal government departments, including the provision of expert and timely advice in the form of reports tabled in Parliament. The basic elements of this program include:- Canada Pension Plan and Old Age Security: The OCA estimates long-term expenditures, revenues and current liabilities of the CPP and long-term future expenditures for Old Age Security programs. The OCA also prepares statutory triennial actuarial reports on the financial status of these programs.
- Other Public Sector Pension Plans: The OCA prepares statutory triennial actuarial reports on the financial status of federal public sector employee pension and insurance plans covering the federal Public Service, the Canadian Armed Forces, the Royal Canadian Mounted Police, the federally appointed judges and Members of Parliament.
Since 2001, the OCA also undertakes the actuarial review of the Canada Student Loans Program by evaluating the portfolio of loans and the long-term program costs.
II.3 Monitoring Mechanisms and Performance
OSFI uses various types of performance measures, including industry surveys, peer reviews and internal indicators. For each priority, the reporting is based on the types of monitoring mechanisms used.
Since 1998, OSFI has engaged in a process of periodic, anonymous, independent consultations with industry stakeholders. Generally these are comprised of senior executives and professionals representing the stakeholder group, and are subsequently referred to as “knowledgeable observers”. This provides OSFI with an indication of its performance in program areas, including whether it is providing the guidance and direction necessary to stakeholders.
OSFI's mandate explicitly provides that closures and terminations of the financial institutions it regulates can occur and are not by themselves an indication of OSFI's performance. In considering those that do occur, OSFI assesses how it performed relative to its early intervention mandate in identifying the situation and intervening appropriately.
It should be recognized that OSFI's performance does not constitute the only influence on its strategic outcomes. Indeed, OSFI's legislation recognizes that there are many other factors and stakeholders whose actions or inactions have a large impact on the strategic outcomes. OSFI monitors the external environment to help ensure it has a clear understanding of the influences on its key strategic outcomes and to gain additional insights into the ways by which OSFI itself can continue to contribute to those outcomes.
In 2007-2008, OSFI enhanced its performance measurement framework and performance measures for external reporting to Parliament, Treasury Board and other stakeholders. This framework, comprising measures, indicators, targets and reporting cycles, meets the requirements of the Treasury Board's Management Resources and Results Structure (MRRS) Policy and was embedded into OSFI's 2008-2009 Report on Plans and Priorities. OSFI is implementing, where feasible and appropriate, reporting based on the updated measures from the enhanced framework in this 2007-2008 Departmental Performance Report.
In some cases, data collection against prior measures was discontinued in order to implement OSFI's enhanced measures. In other cases, new measures were developed to support new priorities. Performance measures that are included for the first time in this report are identified as “NEW”.
II.4 Detailed Analysis of Performance
The diagram below illustrates the link between OSFI's priorities and its Program Activity Architecture.
In addition to the above Program Priorities, OSFI has Program Support Priorities which are discussed in Section IV.3.
The following tables provide an assessment of OSFI's performance for the year against its Program Priorities and Management Priorities.
| Strategic Outcome: Regulate and Supervise to Contribute to Public Confidence in Canada's Financial System and Safeguard from Undue Loss |
|||||||||||||
| Program Activity: Regulation and Supervision of Federally Regulated Financial Institutions | |||||||||||||
| Program Sub-Activity: Risk Assessment and Intervention | |||||||||||||
| Priority 1: Accurate risk assessments of financial institutions and timely, effective intervention and feedback. (Ongoing) | |||||||||||||
| Description Monitor and supervise financial institutions; monitor the financial and economic environment to identify emerging issues and risks. Intervene in a timely manner to protect depositors and policyholders while recognizing that OSFI cannot eliminate the possibility of failures. |
|||||||||||||
Key Expected Results
|
|||||||||||||
Key Performance Measures / Achieved Results
|
Ratings
2007-08 – Successfully met
2007-08 – Successfully met 2006-07 – N/A 2005-06 – N/A |
||||||||||||
|
Performance Discussion
Steps taken during the year in support of this objective include:
|
|||||||||||||
|
Financial Resources ($ millions)
Human Resources (average Full-Time Equivalents, including Internal Services)
|
|||||||||||||
PRIORITY A
| Strategic Outcome: Regulate and Supervise to Contribute to Public Confidence in Canada's Financial System and Safeguard from Undue Loss |
|
| Program Activity: Regulation and Supervision of Federally Regulated Financial Institutions | |
| Program Sub-Activity: Risk Assessment and Intervention | |
| Priority A: Readiness Planning (New) | |
Description
|
|
Key Expected Results
|
|
Key Performance Measures / Achieved Results
|
Ratings 2007-08 – Successfully met 2006-07 – N/A 2005-06 – N/A 2007-08 – Successfully met 2006-07 – N/A 2005-06 – N/A |
|
Performance Discussion Steps taken during the year in support of this objective include:
Steps planned for the future to improve performance include:
|
|
| Financial Resources and Human Resources: Included in Priority 1 | |
PRIORITY B
| Strategic Outcome: Regulate and Supervise to Contribute to Public Confidence in Canada's Financial System and Safeguard from Undue Loss |
|
| Program Activity: Regulation and Supervision of Federally Regulated Financial Institutions | |
| Program Sub-Activity: Risk Assessment and Intervention | |
| Priority B: Basel II: Implementation Phase (Previously committed) | |
|
Description The implementation of the Basel II Capital Accord in Canada is a multi-year initiative. In 2007-2008 the objective of the program was to:
|
|
Key Expected Results
|
|
Key Performance Measures / Achieved Results
|
Ratings
2007-08 –Successfully met |
|
Performance Discussion
Steps taken during the year in support of this objective include
Steps planned for the future to improve performance include: The Basel II program has now moved into the post-implementation phase. Work in the next year will focus on:
|
|
| Financial Resources and Human Resources: Included in Priority 1 | |
PRIORITY C
| Strategic Outcome: Regulate and Supervise to Contribute to Public Confidence in Canada's Financial System and Safeguard from Undue Loss |
|
| Program Activity: Regulation and Supervision of Federally Regulated Financial Institutions | |
| Program Sub-Activity: Risk Assessment and Intervention | |
| Priority C: Financial Sector Assessment Program (FSAP) Update / Financial Action Task Force (FATF) (New) | |
| Description Participate in FSAP Update and FATF review and be in a position to deal with any feedback that results from the reviews. |
|
| Key Expected Results OSFI will receive an independent view as to whether it develops, maintains and contributes to a regulatory framework that meets or exceeds international minimums. |
|
Key Performance Measures / Achieved Results
|
Ratings
2007-08 – |
|
Performance Discussion
Steps taken during the year in support of this objective include: FSAP
|
|
| Financial Resources and Human Resources: Included in Priority 1 | |
PRIORITY 2
| Strategic Outcome: Regulate and Supervise to Contribute to Public Confidence in Canada's Financial System and Safeguard from Undue Loss |
|||||||||||||
| Program Activity: Regulation and Supervision of Federally Regulated Financial Institutions | |||||||||||||
| Program Sub-Activity: Rule Making | |||||||||||||
| Priority 2: A balanced, relevant regulatory framework of guidance and rules for financial institutions that meets or exceeds international minimums. (Ongoing) | |||||||||||||
| Description Issuance of guidance and input into federal legislation and regulations affecting financial institutions. Contribute a regulatory perspective to accounting, auditing and actuarial standards as required. Contribute to the development of international prudential rule-making. |
|||||||||||||
Key Expected Results
|
|||||||||||||
Key Performance Measures / Achieved Results
|
Ratings
2007-08 – 2007-08 – Successfully met 2006-07 – N/A 2005-06 – N/A 2007-08 – Successfully met 2006-07 – N/A 2005-06 – N/A |
||||||||||||
|
Performance Discussion
Steps taken during the year in support of this objective include:
|
|||||||||||||
|
Financial Resources ($ millions)
Human Resources (average Full-Time Equivalents, including Internal Services)
|
|||||||||||||
PRIORITY D
| Strategic Outcome: Regulate and Supervise to Contribute to Public Confidence in Canada's Financial System and Safeguard from Undue Loss |
|
| Program Activity: Regulation and Supervision of Federally Regulated Financial Institutions | |
| Program Sub-Activity: Rule Making | |
| Priority D: Accounting Standards: Implement move from Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards (IFRS) (Previously committed) | |
| Description Implement the move from Canadian Generally Accepted Accounting Principles to International Financial Reporting Standards by addressing changes to OSFI's prudential regime, including consideration of changes in accounting for insurance. This is a multi-year priority with full implementation expected to be completed by 2011. |
|
Key Expected Results
|
|
Key Performance Measures / Achieved Results
|
Ratings
2007-08 –
2007-08 – N/A 2006-07 – Successfully met 2005-06 – N/A |
|
Performance Discussion
Steps taken during the year in support of this objective include:
|
|
| Financial Resources and Human Resources: Included in Priority 2 | |
PRIORITY E
| Strategic Outcome: Regulate and Supervise to Contribute to Public Confidence in Canada's Financial System and Safeguard from Undue Loss |
|
| Program Activity: Regulation and Supervision of Federally Regulated Financial Institutions | |
| Program Sub-Activity: Rule Making | |
| Priority E: Minimum Continuing Capital Surplus Requirements (MCCSR) (New) | |
| Description Develop and agree on a capital framework for life insurance companies. This is a multi-year priority with staged implementation expected to begin in 2011. |
|
Key Expected Results
|
|
Key Performance Measures / Achieved Results
|
Ratings
2007-08 – |
|
Performance Discussion
Steps taken during the year in support of this objective include:
|
|
| Financial Resources and Human Resources: Included in Priority 2 | |
PRIORITY 3
| Strategic Outcome: Regulate and Supervise to Contribute to Public Confidence in Canada's Financial System and Safeguard from Undue Loss |
|||||||||||||
| Program Activity: Regulation and Supervision of Federally Regulated Financial Institutions | |||||||||||||
| Program Sub-Activity: Approvals | |||||||||||||
| Priority 3: A prudentially effective, balanced and responsive approvals process. (Ongoing) | |||||||||||||
| Description Approvals include those required under the legislation applicable to financial institutions and other approvals for supervisory purposes. |
|||||||||||||
Key Expected Results
|
|||||||||||||
Key Performance Measures / Achieved Results
|
Ratings
2007-08 – |
||||||||||||
|
Performance Discussion
Steps taken during the year in support of this objective include:
|
|||||||||||||
|
Financial Resources ($ millions)
Human Resources (average Full-Time Equivalents, including Internal Services)
|
|||||||||||||
PRIORITY 4
| Strategic Outcome: Regulate and Supervise to Contribute to Public Confidence in Canada's Financial System and Safeguard from Undue Loss |
|||||||||||||
| Program Activity: Regulation and Supervision of Federally Regulated Private Pension Plans | |||||||||||||
| Program Sub-Activity: Activities related to the Regulation and Supervision of Federally Regulated Private Pension Plans | |||||||||||||
| Priority 4: Accurate risk assessments of pension plans, timely and effective intervention and feedback, a balanced, relevant regulatory framework, and a prudentially effective and responsive approvals process. (Ongoing) | |||||||||||||
| Description Incorporates risk assessment, intervention, rule making and approvals related to federally regulated private pension plans under the Pension Benefits Standards Act, 1985. |
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Key Expected Results
|
|||||||||||||
Key Performance Measures / Achieved Results
For Measures 2, 3 and 4 above: In 2005, OSFI commissioned independent consultations with pension plan sponsors and professionals. Among sponsors (62%) and professionals (79%), satisfaction with OSFI as a regulator of federal private pension plans was moderately high. Source: Pension Consultation Findings 200510 |
Ratings
2007-08 – Successfully met
2007-08 – N/A 2006-07 – N/A 2005-06 – N/A 2007-08 – N/A 2006-07 – N/A 2005-06 – N/A 2007-08 – N/A 2006-07 – N/A 2005-06 – N/A |
||||||||||||
|
Performance Discussion
Steps taken during the year in support of this objective include:
|
|||||||||||||
|
Financial Resources ($ millions)
Human Resources (average Full-Time Equivalents, including Internal Services)
|
|||||||||||||
PRIORITY F
| Strategic Outcome: Regulate and Supervise to Contribute to Public Confidence in Canada's Financial System and Safeguard from Undue Loss |
|
| Program Activity: Regulation and Supervision of Federally Regulated Private Pension Plans | |
| Program Sub-Activity: Activities related to the Regulation and Supervision of Federally Regulated Private Pension Plans | |
| Priority F: Pension Systems and Processes (New) | |
| Description Enhance OSFI's ability to perform as required in an increasingly complex pensions environment. This is a multi-year priority with full implementation expected in 2010-2011. |
|
Key Expected Results
|
|
Key Performance Measures / Achieved Results
|
Ratings
2007-08 – Successfully met |
|
Performance Discussion
Steps taken during the year in support of this objective include:
|
|
| Financial Resources and Human Resources: Included in Priority 4 | |
PRIORITY 5
| Strategic Outcome: Regulate and Supervise to Contribute to Public Confidence in Canada's Financial System and Safeguard from Undue Loss |
|||||||||||||
| Program Activity: International Assistance | |||||||||||||
| Program Sub-Activity: Activities related to International Assistance | |||||||||||||
| Priority 5: Contribute to awareness and improvement of supervisory and regulatory practices for selected foreign regulators through the operation of an International Assistance Program. (Ongoing) | |||||||||||||
| Description This program activity incorporates activities that provide help to other selected countries that are building their supervisory and regulatory capacity. The costs for this program are recovered primarily via a Memoranda of Understanding between OSFI the Canadian International Development Agency (CIDA). |
|||||||||||||
Key Expected Results
|
|||||||||||||
Key Performance Measures / Achieved Results
|
Ratings
2007-08 – Successfully met |
||||||||||||
|
Performance Discussion
Steps taken during the year in support of this objective include:
|
|||||||||||||
|
Financial Resources ($ millions)
Human Resources (average Full-Time Equivalents, including Internal Services)
|
|||||||||||||
| Strategic Outcome: Contribute to Public Confidence in Canada's Public Retirement Income System | |||||||||||||
| Program Activity: Office of the Chief Actuary (OCA) | |||||||||||||
| Program Sub-Activities: Canada Pension Plan & Old Age Security; Public Pension Plans; Canada Student Loans | |||||||||||||
| Priority 6: Contribute to ensuring there are financially sound federal government public pension and other programs. (Ongoing) | |||||||||||||
| Description The OCA provides a range of actuarial services, under legislation, to the Canada Pension Plan (CPP) and some federal government departments. The OCA estimates long-term expenditures, revenues and current liabilities of the CPP and of long-term future expenditures for the Old Age Security (OAS) program, and prepares statutory triennial actuarial reports on the financial status of the Public Sector Pension and Benefits Plans. The OCA also undertakes the actuarial review of the Canada Student Loans Program (CSLP). |
|||||||||||||
Key Expected Results
|
|||||||||||||
Key Performance Measures / Achieved Results
|
Ratings
2007-08 – Successfully met 2007-08 – Successfully met 2006-07 – N/A 2005-06 – N/A 2007-08 – Successfully met 2006-07 – Successfully met 2005-06 – Successfully met 2007-08 – Successfully met 2006-07 – Successfully met 2005-06 – Successfully met 2007-08 – Successfully met 2006-07 – N/A 2005-06 – N/A 2007-08 – Successfully met 2006-07 – N/A 2005-06 – N/A |
||||||||||||
|
Performance Discussion
Steps taken during the year in support of this objective include:
|
|||||||||||||
|
Financial Resources ($ millions)
Human Resources (average Full-Time Equivalents, including Internal Services)
|
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SECTION III: SUPPLEMENTARY INFORMATION
III.1 Links to Government of Canada's Outcomes
OSFI's strategic outcomes, supported by its plans and priorities, are intrinsically aligned with broader government outcomes, specifically strong economic growth, income security and employment for Canadians, and a safe and secure world through international co-operation, as identified in the TBS report Canada's Performance 2007.
The following table summarizes the linkages between OSFI's strategic outcomes, program activities and the Government of Canada's Outcomes. The specific linkages are described in more detail after the table.
| Strategic Outcome # 1: To regulate and supervise to contribute to public confidence in Canada's financial system and safeguard from undue loss. | ||||
| Actual Spending 2007-08 ($ millions) |
Alignment to Government of Canada Outcome Area | |||
| Budgetary | Non-budgetary | Total | ||
| Program Activity 1.1 Regulation and Supervision of Federally Regulated Financial Institutions |
$72.8 | $72.8 |
|
|
| Program Activity 1.2 Regulation and Supervision of Federally Regulated Private Pension Plans |
$5.8 | $5.8 |
|
|
| Program Activity 1.3 International Assistance |
$2.0 | $2.0 |
|
|
| Strategic Outcome #2: To contribute to public confidence in Canada's public retirement income system. |
||||
| Program Activity 2.1 Office of the Chief Actuary |
$5.1 | $5.1 |
|
|
Strong Economic Growth
A properly functioning financial system, in which consumers have a high degree of confidence, makes a material contribution to Canada's economic performance. OSFI supervises and regulates more than 450 federally regulated financial institutions, and intervenes in a timely manner to protect depositors and policyholders, while recognizing that not all failures can be prevented.
During 2007-2008, OSFI focussed on assessing the impact of volatile credit and financial markets on FRFIs’ liquidity and capital levels.
Income Security and Employment for Canadians
OSFI supervises and regulates more than 1,300 pension plans covering employees in federally regulated areas of employment, and works to promote responsible pension plan risk management, governance and actuarial practices.
During 2007-2008, OSFI emphasized the need for plan administrators to assess their exposure to market and other stresses, to consider their risk tolerance, and to take action to manage risk appropriately.
Canada has set in place a public pensions system that is expected to be sustainable and affordable well into the future in the face of changing demographic conditions. The Office of the Chief Actuary (OCA) provides appropriate checks and balances on the future costs of the different pension plans and social programs that fall under its responsibilities.
During 2007-2008, the OCA produced and tabled before Parliament actuarial reports on the Canada Pension Plan, various public sector employee pension and insurance plans, and the Canada Student Loans Program.
A Safe and Secure World through International Cooperation
OSFI supports the government's priority for a safe and secure world by contributing to the fight against terrorism financing and money laundering. OSFI's focus relates to the guidance and supervisory review of the operation of financial institution programs to comply with anti-money laundering/anti-terrorism financing (AML/ATF) requirements.
During 2007-2008, OSFI turned the focus of its AML/ATF assessment program to the life insurance sector, and found that progress had been made in the development of effective AML/ATF programs. However, OSFI intervened where necessary to ensure institutions addressed weaknesses and deficiencies that had been identified.
Canada and other G-7 governments recognize that upgrading the supervisory capacity of emerging market supervisory authorities can enhance the stability of the global financial system. Canada plays an important role in this regard, in part through OSFI's technical assistance program, which helps selected emerging market economies to improve the supervisory systems for their financial institutions in line with international banking and insurance supervisory standards.
During 2007-2008, OSFI's International Advisory Group (IAG) delivered several bilateral or multilateral programs, sometimes in partnership with other technical assistance providers, in some 30 countries, many of which necessitated follow-up visits.
III.2 Financial and Other Tables
This section presents a number of financial tables that detail OSFI's Expenditures, Revenues and Statutory Payments for 2007-2008. Tables 1 and 2 are provided in accordance with Treasury Board requirements. Tables 3, 4A, 4B, 5, 6, 7 and 8 provide additional information on Respendable and Non-Respendable Revenue, User Fees, Service Standards for External Fees, Responses to Parliamentary Committees, Internal Audits and Travel Policies, according to Treasury Board requirements. (NOTE: In accordance with TBS guidelines, tables 3, 4A, 4B, 5, 6, and 7 do not form part of this document but links are provided. A link is also provided to the Financial Statements, termed Table 8.)
Background
Overall, OSFI recovered all its expenses for the fiscal year 2007-2008 based on the recording of its revenues and expenses on a full accrual accounting basis according to Canadian Generally Accepted Accounting Principles (GAAP) for the private sector. The following tables provide details on OSFI's spending compared to plan as detailed in the 2007-2008 Report on Plans and Priorities.
Further details on OSFI's finances are available in its Audited Financial Statements, which are published in OSFI's Annual Report. OSFI's annual reports can be accessed on OSFI's web site under Organization / Reports/ Annual Reports.
NOTE: OSFI operates on an accrual basis and the following tables are reported on a modified cash basis, hence there are differences between the audited financial statements and the following tables. Typically the differences result from the accounting treatment of capital expenditures and accounts receivable.
Table 1: Comparison of Planned to Actual Spending (including average full-time equivalents)
OSFI has four program activities: (1) Regulation and Supervision of Federally Regulated Financial Institutions; (2) Regulation and Supervision of Federally Regulated Private Pension Plans; (3) International Assistance; and (4) Office of the Chief Actuary. The table below provides a comparison of OSFI's 2007-2008 planned versus actual spending by program activity, and a comparison to actual spending in the two previous fiscal years.
The amounts shown in Table 1 reflect net spending: total expenditures less total revenue. As OSFI must fully recover its expenditures or costs for all programs other than the Office of the Chief Actuary, the planned spending is zero on a modified cash basis. OSFI fully recovered its costs on an accrual basis as shown in its audited financial statements; however differences between the accounting methodologies give rise to fluctuations from year to year in spending levels. Table 1 below illustrates such fluctuations in actual spending.
| ($ thousands) | 2005–2006 Actual |
2006–2007 Actual |
2007–2008 | |||
| Main Estimates |
Planned Spending |
Total Authorities |
Actual | |||
| (1) Regulation and Suprvision of Federally Regulated Financial Institutions | (6,757) | 4,150 | - | - | - | (3,931) |
| (2) Regulation and Supervision of Federally Regulated Private Pension Plans | 1,584 | 447 | - | - | - | (1,402) |
| (3) International Assistance | 380 | 273 | - | - | - | 379 |
| (4) Office of the Chief Actuary | 32 | 434 | 784 | 784 | 873 | 603 |
| Total | (4,761) | 5,304 | 784 | 784 | 873 | (4,351) |
| Less: Non‑Respendable revenues | 805 | 227 | - | - | - | 374 |
| Plus: Cost of services received without charge* | 438 | 658 | - | - | - | 113 |
| Net Cost of Program | (5,128) | 5,735 | 784 | 784 | 873 | (4,612) |
| Average Full-Time Equivalents | 434 | 446 | 461 | 459 | ||
* 2007-2008 includes services from the Office of the Auditor General ($85K) and Department of Justice ($28K)
On the modified cash basis of accounting, OSFI had a greater inflow of funds than outflows during 2007-2008. This is largely the result of collections during the year of outstanding accounts receivable pertaining to 2006-2007, and of base assessments and pension fees for the current year, which included amortization expense (a non-cash item) related to capital acquisitions in prior years. These timing differences cause fluctuations from year to year in OSFI's spending levels on a modified cash basis, and explain the total inflow of $4,351 thousand in 2007-2008 versus the previous year's net expenditures of $5,304 thousand. OSFI also incurred lower capital spending than planned due to later start dates and deferrals to fiscal year 2008-2009 of Information Management/ Information Technology projects.
Table 2: Voted and Statutory Items
| Vote or Statutory Item |
Truncated Vote |
2007–2008 ($ thousands) |
|||
| Main Estimates |
Planned Spending |
Total Authorities |
Total Actual | ||
| 30 | Operating expenditures | 784 | 784 | 873 | 603 |
| Total | 784 | 784 | 873 | 603 | |
This table summarizes Parliament's voted appropriations, or funds, to OSFI. OSFI receives an annual parliamentary appropriation pursuant to section 16 of the OSFI Act to support its mandate relating to the Office of the Chief Actuary.
In this fiscal year, OSFI was granted $873 thousand (2007: $768 thousand). This parliamentary appropriation is to defray the expenses associated with the provision of actuarial services to various public sector employee pension and insurance plans, including the Canadian Armed Forces, the Royal Canadian Mounted Police, the federally appointed judges and Members of Parliament.
Please note that the appropriations are calculated using a modified cash basis of accounting rather than full accrual accounting. This difference will give rise to variances between OSFI's use of funds and appropriated funds.
In keeping with TBS guidelines, the following tables are available only electronically.
Table 3: Sources of Respendable and Non-Respendable Revenue
Table 4A: User Fees Act
Table 4B: Policy on Service Standards for External Fees
Table 5: Response to Parliamentary Committees and External Audits
Table 6: Internal Audits and Evaluations
Table 7: Travel Policies
For supplementary information on these tables, please visit Treasury Board of Canada Secretariat website’s Estimates / 2007-2008 Departmental Performance Reports: http://www.tbs-sct.gc.ca/dpr-rmr/st-ts-eng.asp
Table 8: Financial Statements
OSFI's Audited Financial Statements are published each year in OSFI's Annual Report, which is tabled in Parliament in the fall. The 2007-2008 Annual Report can be found on OSFI's Web site under Organization / Reports / Annual Reports.
SECTION IV: OTHER ITEMS OF INTEREST
IV.1 Organizational Information
OSFI comprises three sectors (see organization chart below), each headed by an Assistant Superintendent. Each sector works interdependently to achieve OSFI's strategic outcomes. There is also an independent Internal Audit and Consulting Services function that reports directly to the Superintendent. In addition, OSFI has an Audit Committee that is primarily composed of external members.
The Office of the Chief Actuary was created within the organization as a separate unit to provide effective actuarial and other services to the Government of Canada and provincial governments that are Canada Pension Plan (CPP) stakeholders.
Workforce
As at March 31, 2008, OSFI employed 467 people in offices located in Ottawa, Montreal, Toronto and Vancouver.
| Sector | As at March 31, 2007 | % of total | As at March 31, 2008 | % of total |
| Supervision | 177 | 38% | 177 | 38% |
| Regulation | 127 | 27% | 134 | 28% |
| Office of the Chief Actuary | 26 | 6% | 26 | 6% |
| Corporate Services and other16 | 132 | 29% | 130 | 28% |
| TOTAL | 462 | 100% | 467 | 100% |
IV.2 Internal Services
Please refer to OSFI's PAA in Section I for a listing of Internal Services.
To facilitate government-wide roll-ups, the costs of OSFI's Internal Services and program support activities are allocated to each program activity to present the full program costs. The following table illustrates how OSFI's 2007-2008 actual Internal Services costs are allocated to its other program activities.
| ($ thousands) | Program Activity | ||||
| Regulation and Supervision of Federally Regulated Financial Institutions | Regulation and Supervision of Federally Regulated Private Pension Plans | International Assistance | Office of the Chief Actuary | Total -2007-2008 Actual | |
| Information Technology Services | 9,939 | 648 | 138 | 564 | 11,289 |
| Human Resources Management Services | 6,981 | 455 | 97 | 396 | 7,929 |
| Facilities/Asset Management Services | 3,389 | 221 | 47 | 192 | 3,849 |
| Public Affairs/Communications Services | 2,583 | 168 | 36 | 147 | 2,934 |
| Information Management Services | 1,728 | 113 | 24 | 98 | 1,963 |
| Financial Management Services | 1,372 | 89 | 19 | 78 | 1,558 |
| Internal Audit Services | 1,223 | 80 | 17 | 70 | 1,390 |
| Management and Oversight Services | 916 | 60 | 12 | 52 | 1,040 |
| Other Support Delivery Services | 690 | 45 | 9 | 39 | 783 |
| Legal Services | 513 | 33 | 7 | 29 | 582 |
| Supply Chain Management Services | 199 | 13 | 3 | 11 | 226 |
| TOTAL Internal Services |
29,533 | 1,925 | 409 | 1,676 | 33,543 |
IV.3 Program Support Priorities
OSFI has two Program Support Priorities that support the Program Activities. In addition, for 2007-2008, OSFI had a Management Priority in support of the Program Activities. These three Priorities and their performance information are discussed below.
PRIORITY 7
| Priority 7: High quality internal governance and related reporting. (Ongoing) | |
| Description OSFI's Program Activities are supported by Corporate-wide Activities, whose costs are allocated to each Program Activity. These activities include, among others, Management and Oversight Services, Financial Management Services, Public Affairs/Communications Services, and Internal Audit Services. |
|
Key Expected Results
|
|
Key Performance Measures / Achieved Results
|
Ratings
2007-08 – Successfully met 2007-08 – Successfully met 2006-07 – N/A 2005-06 – N/A |
|
Performance Discussion
Steps taken during the year in support of this objective include:
Steps planned for the future to improve performance include:
|
|
| Financial and Human Resources: Included in Priorities 1 to 6. | |
PRIORITY 8
| Priority 8: Resources and infrastructure necessary to support supervisory and regulatory activities. (Ongoing) | |
| Description OSFI's Program Activities are supported by Corporate-wide Activities, whose costs are allocated to each Program Activity. These activities include, among others, Human Resources Management Services, Management and Oversight Services, Supply Chain Management Services, Facilities/Asset Management Services, Information Management Services, Information Technology Services, and Other Support Delivery Services. |
|
Key Expected Results
|
|
Key Performance Measures / Achieved Results
|
Ratings
2007-08 – Successfully met
2007-08 – N/A 2006-07 – Successfully met (for actuarial staff) 2005-06 – Successfully met (for pension staff) 2007-08 – Successfully met 2006-07 – N/A 2005-06 – N/A 2007-08 – Successfully met 2006-07 – N/A 2005-06 – Successfully met 2007-08 – Successfully met 2006-07 – N/A 2005-06 – N/A |
|
Performance Discussion
Steps taken during the year in support of this objective include:
|
|
| Financial and Human Resources: Included in Priorities 1 to 6. | |
PRIORITY G
| Priority G: Integration of Human Resources (HR) Planning into Business Planning (New) | |
| Description Ensure OSFI has the human resources available to fulfill its mandate, through better long-range, integrated planning. |
|
Key Expected Results
|
|
Key Performance Measures / Achieved Results
|
Ratings
2007-08 - |
|
Performance Discussion
Steps taken during the year in support of this objective include:
|
|
| Financial and Human Resources: Included in Priorities 1 to 6. | |
IV.4 Government Priorities and Other Initiatives
This section summarizes OSFI's involvement in a number of initiatives.
Program Activity Architecture – Performance Measurement Framework
In December 2007, OSFI received from the Treasury Board Secretariat approval of its performance measurement framework (PMF) and governance structure for the Office of the Superintendent of Financial Institutions’ Strategic Outcomes and Program Activity Architecture. The PMF and governance structure were developed to meet the standards of Step 2 of the implementation of the
Treasury Board's Management, Resources, and Results Structure Policy. The PMF will form the basis for systematic and ongoing collection of performance information.
Proactive Disclosure
In accordance with federal government policies introduced in 2004, OSFI published information on travel and hospitality expenses incurred within OSFI by the Superintendent, Assistant Superintendents and Chief Actuary, as well as information on contracts over $10,000 issued by or on behalf of OSFI. Effective spring 2006, the disclosure of Grants and Contributions was also required.
All proactive disclosure information is updated every three months on OSFI's Web site.
Acts, Legislation and Regulations
Information on the Acts, Legislation and Regulations administered by or impacting OSFI can be found on the OSFI Web site, www.osfi-bsif.gc.ca , under About OSFI / Legislation . The acts can be found on the Justice Canada Web site under “Laws” at http://laws.justice.gc.ca .
IV.5 Other References
Headquarters
Office of the Superintendent of Financial Institutions Canada
255 Albert Street
16th Floor
Ottawa, Ontario
K1A 0H2
Telephone: (613) 990-7788
Fax: (613) 952-8219
Web site: www.osfi-bsif.gc.ca
Publications
Please see OSFI Web site www.osfi-bsif.gc.ca for details.
1 In its Departmental Performance Report for the fiscal year ending March 31, 2007, OSFI reported 456 average full-time equivalents. This number was restated to 446 to conform to the presentation adopted during fiscal year 2007-2008.
2 A detailed discussion of results begins in Section II.4
3 This measure is a proxy for whether OSFI intervened early enough to prevent undue loss to depositors and/or policyholders. Estimated recovery is the amount on the dollar per claim each policyholder or depositor would receive upon the completion of the liquidation. Expectation > $0.90.
4 OSFI provided The Strategic Counsel, an independent research firm, with a list of CEOs of federally regulated financial institutions. The research firm invited the CEOs to participate in either an online or a telephone survey, and 166 (61%) participated. OSFI does not know which CEOs participated. The complete report is available on OSFI's Web site under Organization / Reports/ Consultations and Surveys.
5 OSFI provided The Strategic Counsel, an independent research firm, with a list of CEOs of federally regulated financial institutions. The research firm invited the CEOs to participate in either an online or a telephone survey, and 166 (61%) participated. OSFI does not know which CEOs participated. The complete report is available on OSFI’s Web site under Organization / Reports/ Consultations and Surveys.
6 In 2006-2007, 87% of life insurance company executives and professionals rated this as very good, good and fair. When “fair” is included in the 2007-2008 results, the total rating is 92%.
7 OSFI provided The Strategic Counsel, an independent research firm, with a list of CEOs of federally regulated financial institutions. The research firm invited the CEOs to participate in either an online or a telephone survey, and 166 (61%) participated. OSFI does not know which CEOs participated. The complete report is available on OSFI's Web site under Organization / Reports/ Consultations and Surveys.
8 90% of deemed approvals must be processed in less than 30 calendar days of receipt. For a detailed listing of all other performance standards, please refer to OSFI's website under For Regulated Entities / Banks / Applications and Approvals / User fees-Service Charges.
9 This measure is a proxy for whether OSFI intervened early enough to prevent undue loss to plan beneficiaries. Estimated recovery is the percentage of the benefit promised that each plan beneficiary would receive upon the completion of the liquidation.
10 In 2005-2006, OSFI provided The Strategic Counsel, an independent research firm, with a list of pension plan sponsors and professionals. The research firm invited 399 of these stakeholders to participate in a web survey, and 158 (40%) responded. The research firm also conducted 69 one-on-one confidential interviews. The research firm selected the samples independently from the list and OSFI does not know who was interviewed. The complete report is available on OSFI's Web site under Organization / Reports/ Consultations and Surveys.
11 Surveys are provided to workshop participants when IAG staff are the primary presenters. IAG delivered 27 such workshops in 2007-2008, with 1009 participants. A total of 808 surveys were completed, for a response rate of 80.1%. A revised questionnaire was implemented part way during the year, which introduced the second performance measure. This question was completed by 458 participants.
12 The CPP Peer Review is conducted every three years. The most recent review was completed March 2008.
13 The OCA is required by law to produce an actuarial report on the CPP every three years. The next report will be published in 2010.
14 A consultant is engaged by the OAG to review various OCA public pension actuarial reports and documents relevant to the information disclosed in the Public Accounts of Canada.
15 The CSLP actuarial reports are completed on an annual basis.
16 "Other" includes employees in the Superintendent's Office, Internal Audit and Consulting Services and the Secretariat of the Audit Committee.
17 In the fall of 2007, Talentmap, an independent research firm, conducted a confidential on-line survey of OSFI employees. A total of 375 employees participated, for a response rate of 83%.