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2011-12
Report on Plans and Priorities
Office of the Superintendent of Financial Institutions
The original version was signed by
The Honourable James M. Flaherty, P.C., M.P.
Minister of Finance
Table of Contents
Message from the Superintendent
Section I - Agency Overview
- Financial Resources
- Human Resources
- Contribution of Priorities to Strategic Outcomes
- Risk Analysis
- Expenditure Profile
- Estimates by Vote
Section II - Analysis of Program Activities by Strategic Outcome
2.1.1 - Program Activity: Regulation and Supervision of Federally Regulated Financial Institutions
2.1.2 - Program Activity: Regulation and Supervision of Federally Regulated Private Pension Plans
2.1.3 - Program Activity: International Assistance
2.2.1 - Program Activity: Actuarial Valuation and Advisory Services
2.3 Program Activity: Internal Services
Section III - Supplementary Information
Message from the Superintendent
The Office of the Superintendent of Financial
Institutions (OSFI) is tasked with overseeing the solvency of
federally regulated financial institutions in the interest of
depositors and policyholders, and protecting members in federal
private pension plans. This 2011–2012 Report on Plans
and Priorities highlights several areas where OSFI will focus its
efforts. We will continue our contribution to a strong domestic
financial system, in the face of a volatile global economic
climate and transformational international regulatory
changes.
With the Global economy adjusting to new rules and continued uncertainty, the coming years will represent a new set of challenges to the financial institutions and pension plans subject to our oversight. OSFI will be focusing on anticipating and addressing risks resulting from regulatory changes and creating higher standards for effective risk management and governance. We will be paying particular attention to the effects of implementation of international accounting rule changes and of Basel III capital adequacy requirements. In addition, OSFI will continue to work on reform of the capital framework for insurance companies and moving toward a market consistent approach.
OSFI’s participation and leadership in international fora like the Basel Committee on Banking Supervision, the International Senior Supervisors Group, the Financial Stability Board and the International Association of Insurance Supervisors is an important part of ensuring that Canada maintains a flexible and robust financial framework. The economic crisis has shown us that problems can quickly spread across many jurisdictions and even those institutions that were well managed and supervised were impacted. It is clear that there is a need for strong international standards and our participation in these fora help to ensure that the Canadian experience can be shared and that Canada can continue to apply global best practices.
OSFI is responsible for providing high quality supervision and regulation of financial institutions but we are not alone in ensuring that the Canada has a safe and sound financial system. Prudent financial sector participation and strong cooperation and communication among Financial Institutions Supervisory Committee (FISC) partners - OSFI, the Bank of Canada, the Canada Deposit Insurance Corporation, the Financial Consumer Agency of Canada and the Department of Finance – are responsible for contributions to Canadian and international confidence in our financial system.
It is important that OSFI has the right people and right tools to continue to be effective in the face of transformational rule changes and new risks that may arise. Our plan includes a critical renewal of our information management and technological infrastructure and a renewed focus on forward-looking Human Resources strategies particularly in very specialized areas of financial institution operations so as to continue to identify and assess risks at very early stages.
Section I – Agency Overview
1.1 Summary Information
Raison d’être
The Office of the Superintendent of Financial Institutions (OSFI) supervises and regulates all federally incorporated or registered deposit-taking institutions (e.g., banks), life insurance companies, property and casualty insurance companies, and federally regulated private pension plans.
OSFI safeguards depositors, policyholders and private pension plan members by enhancing the safety and soundness of federally regulated financial institutions and private pension plans.
The Office of the Chief Actuary (OCA) is a separate unit within OSFI and provides expert actuarial services and advice on the state of various public pension plans and on the financial implications of options being considered by policy makers. In conducting its work, the OCA plays a vital and independent role towards a financially sound and sustainable Canadian public retirement income system.
Responsibilities
OSFI's legislated mandate was implemented in 1996 and under the legislation, OSFI’s mandate 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.
OSFI’s prudential mandate supports a safe and sound Canadian 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 and that financial institutions and pension plans can fail.
Strategic Outcomes
Primary to OSFI’s mandate and central to its contribution to Canada’s financial system are two strategic outcomes:
- A safe and sound Canadian financial system.
- A financially sound and sustainable Canadian public retirement income system.
Program Activity Architecture (PAA)
The chart below illustrates OSFI’s framework of program activities and program sub-activities, which roll-up and contribute to progress toward the Strategic Outcomes.
Effective March 31, 2010, OSFI ceased its International Assistance program activity, which provided technical assistance to supervisory systems in emerging market economies. The Canadian International Development Agency (CIDA), which funded the majority of OSFI's costs in delivering this assistance, has continued the program in partnership with the Toronto International Leadership Centre for Financial Sector Supervision. During the first quarter of fiscal year 2010-2011, OSFI provided transitional support to the Toronto Centre and in-so-doing incurred spending of $0.4 million, as indicated in section 1.2 of this report.
OSFI's PAA is expected to be modified during 2011-2012 to reflect the elimination of this program activity.
1.2 Planning Summary
| 2011–2012 | 2012–2013 | 2013–2014 |
|---|---|---|
| 117.6 | 115.5 | 117.9 |
The financial resources table above provides a summary of the
total planned spending for OSFI for the next three fiscal
years.1
1 Additional information regarding the Financial and Human Resources trends can be found in the Expenditure Profile section of this report.
| 2011–2012 | 2012–2013 | 2013–2014 |
|---|---|---|
| 563 | 561 | 561 |
The human resources table above provides a summary of the total planned human resources for OSFI for the next three fiscal years.
| Performance Indicators | Targets |
|---|---|
| % of knowledgeable observers2 that rate OSFI as somewhat or very effective in monitoring and supervising their institution or pension plan. | 70% |
| Percentage of estimated recoveries on failed institutions (amount recovered per dollar of claim). | 90% |
| Percentage of estimated recoveries on pension plans that have terminated under-funded. | 85% |
| Program Activity | Expected Results |
Forecast Spending |
Planned Spending ($ millions) |
Alignment to Government of Canada Outcomes | ||
|---|---|---|---|---|---|---|
| 2010-2011 | 2011-2012 | 2012-2013 | 2013-2014 | |||
| Regulation and Supervision of Federally Regulated Financial Institutions | Protect depositors and policy holders while recognizing that all failures cannot be prevented. | 56.5 | 57.8 | 58.9 | 60.5 |
|
| Regulation and Supervision of Federally Regulated Private Pension Plans | Protect the financial interests of federally regulated private pension plan members and beneficiaries. | 4.5 | 5.6 | 4.6 | 4.7 |
|
| International Assistance | Emerging market economies are more informed about current approaches to regulatory and supervisory systems, and deploy them to the extent possible. | 0.4 | 0.0 | 0.0 | 0.0 |
|
| Total for SO 1 | 61.4 | 63.4 | 63.5 | 65.2 | ||
2 Senior Executives, Plan Administrators, and professionals who act on behalf of federally regulated financial institutions and pension plans.
| Performance Indicators | Targets |
|---|---|
| Panel of Canadian peer actuaries selected by an international and independent body attests that the Chief Actuary and staff have adequate professional experience, complete work in compliance with professional standards and statutory requirements, access adequate information and complete relevant data tests and analysis, use reasonable methods and assumptions in completing actuarial reports and that these reports fairly communicate the results of the work performed. | Unanimous agreement amongst peers |
|
Adequacy of professional experience of the Chief Actuary
and staff. AND/OR Compliance with Canadian and international professional standards. |
Unanimous agreement amongst peers Unanimous agreement amongst peers |
| Program Activity | Expected Results |
Forecast Spending |
Planned Spending ($ millions) |
Alignment to Government of Canada Outcomes | ||
|---|---|---|---|---|---|---|
| 2010-2011 | 2011-2012 | 2012-2013 | 2013-2014 | |||
| Actuarial Valuation and Advisory Services | Stewards of Canada’s public retirement income system are provided with independent, accurate, high quality and timely professional actuarial services and advice. | 4.3 | 4.5 | 4.6 | 4.7 |
|
| Total for SO 2 | 4.3 | 4.5 | 4.6 | 4.7 | ||
| Program Activity | Forecast
Spending ($ millions) |
Planned Spending ($ millions) |
||
|---|---|---|---|---|
| 2010–2011 | 2011–2012 | 2012–2013 | 2013–2014 | |
| Internal Services | 45.0 | 49.7 | 47.4 | 48.0 |
| Total for Internal Services | 45.0 | 49.7 | 47.4 | 48.0 |
Contribution of Priorities to Strategic Outcomes
All Operational and Management Priorities link to both of OSFI’s Strategic Outcomes.
| Operational Priorities | Type | Description |
|---|---|---|
| Risks Emanating from the Economy | Ongoing |
|
| Risks Emanating from Regulatory Reform | Ongoing |
|
| Management Priorities | Type | Description |
| A High-Performing and Effective Workforce | Ongoing |
|
| An Enhanced Corporate Infrastructure | Ongoing |
|
Risk Analysis
Enterprise Risk Management
The environment in which OSFI operates presents an array of risks to the achievement of its mandate and objectives. While many of these challenges are consistently present, the extent to which they present a risk to OSFI’s objectives varies, depending on economic and financial conditions and the financial industry environment. 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 is greatest.
OSFI’s Enterprise-wide Risk Management (ERM) framework divides risks into external and internal categories. The external risk category consists of economic and financial conditions, the financial industry environment, OSFI’s legal environment and catastrophic events. External risks arise from events that OSFI cannot influence, but must be able to monitor and respond to in order to mitigate the impact. The internal risk category consists of risks that can broadly be categorized as people, processes, systems, and culture.
Economic, Industry and Regulatory Environment
Although the global financial system continues to recover
gradually from the significant dislocations experienced in recent
years, downside risks remain. With the global economic recovery
expected to be prolonged, the process of repairing the
international financial sector is likely to be protracted, and
achieving a sustainable fiscal position will pose a significant
challenge for several countries. Market concerns over acute
fiscal strains in some euro-area member states and their
potential to lead to wider turmoil in the international financial
system have intensified. As well, with weaker growth, interest
rates may remain at relatively low levels for a period,
potentially creating additional sources of vulnerability in the
financial system over time.
A feature of the recent recovery is the uneven nature of economic
activity across major economic regions, with modest, relatively
slow recovery in many advanced economies, particularly in
comparison to more rapid recovery in emerging-market economies.
The global environment is also associated with large current
account imbalances. After narrowing during the recession, these
imbalances have widened again with the recovery, leading to
tensions in currency markets and increasing the risk of a
disorderly adjustment. More generally, these factors imply
corresponding relative price adjustments, such as (but not
limited to) exchange rate adjustments, which the global economy
will need to work through.
Despite the fragile international financial environment, the
Canadian financial system remains relatively strong, with
domestic financial markets functioning well and the capital and
liquidity positions of Canada’s major banks showing
continuing strength. In particular, the pace of loan-loss
provisioning in the domestic banking sector has moderated from
its cyclical peak in the second quarter of 2009. The aggregate
financial position of the Canadian non-financial corporate sector
also remains sound, with considerably lower leverage than in most
other advanced economies. The rising indebtedness of
Canada’s household sector, however, is a potential source
of concern.
In sum, there are several interconnected sources of risk from the external environment:
- lingering financial fragility associated, in part, with the weak global economic recovery;
- the need for significant fiscal adjustment over the medium-term in major trading partners;
- sovereign debt concerns in several countries;
- large, external imbalances implying a need for corresponding relative price adjustments; and
- the potential for excessive risk-taking behaviour arising from a prolonged period of low interest rates in some advanced economies.
The main domestic source of risk arises from the financial position of Canadian households, which may leave them more vulnerable to adverse events.
OSFI’s ERM process has identified several key risks to the achievement of its mandate and objectives, as follows:
External Risks
Global Economies and the Industry
As noted above, the risks posed by the current environment, both at the level of the economy and within the financial sector, and taking into account ongoing global developments, continue to be of concern. Global financial events require that OSFI be in a position to respond effectively to a continually evolving economic and regulatory environment. On a micro-level, prevailing conditions continue to put pressure on OSFI staff to provide interpretations or to reassess existing guidance to ensure its effectiveness under stressful and evolving conditions. Specific strategies have been put in place within individual Divisions, consistent with specialized responsibilities and current projects, to address ongoing industry developments. Resources continue to be reassigned and priorities realigned as necessary.
Capital Adequacy
Work is underway in many countries and in international fora to develop more risk-sensitive capital frameworks for insurance companies as both companies and regulators recognize the need to have more risk sensitive approaches that better reflect the issues arising from increasingly complex products and dynamic markets. As a result, there is a need to improve the risk sensitivity of the Minimum Continuing Capital and Surplus Requirement (MCCSR) and the Minimum Capital Test (MCT), as well as to incorporate changes due to IFRS, while maintaining the integrity of the existing capital tests.
Impending changes to the Basel capital framework for banks and the need to update prudential regulatory frameworks to address recent market events also require banks and regulators to focus more on the measurement of risks and its relation to the overall level of capital adequacy, leverage and liquidity. Due to the breadth of change and the novelty of certain measures, OSFI expects that the review, consultation and implementation of these changes will require more resources by both financial institutions and OSFI. It is expected that policies creating OSFI’s current prudential framework will have to be updated to incorporate new issues, information and lessons learned from the times of stress and the new internationally required minimum prudential standards.
Internal Risks
People Risks
OSFI’s success is dependent upon having employees with highly specialized knowledge, skills and experience to regulate and supervise financial institutions, identify significant issues, and perform accurate risk assessments. OSFI is also being called on to take an increasing leadership role domestically and internationally and to devote resources to further improving financial regulation and considering systemic issues. OSFI’s ability to meet these expectations is impacted by compensation restraints and budget constraints in light of the fiscal restraint initiatives currently in effect.
A volatile global economy, increasingly complex products, changes to prudential regulation and emerging risks in the industry also mean that OSFI needs to be able to attract, motivate, develop and retain skilled people, particularly those whose skills are in demand in the financial sector. In addition, a significant increase in hiring over the last two years due to market conditions, and normal turnover and retirement rates mean that a continuous learning environment is necessary to enable employees to meet the challenges of this constantly changing environment. Not having sufficient skill sets in place can result in an over reliance on certain key resources, which can lead to other people risks.
Systems Risks
Enabling technology and a robust, secure and well-supported Information Technology (IT) infrastructure are key success factors to OSFI in meeting its mandate. OSFI must ensure that the necessary information systems and infrastructure are in place to effectively support its supervisory and regulatory activities. Implementation issues related to the new IM/IT strategy are being closely monitored and evaluated.
Changes to International Financial Reporting Standards (IFRS)
Canada will move to IFRS in 2011 as required by the Canadian Accounting Standards Board for publicly accountable enterprises, which include FRFIs. OSFI will have completed its preparation for FRFIs to use IFRS, including all our systems modifications. Additionally, OSFI will be monitoring the impact that this changeover has on FRFIs as OSFI relies on FRFIs’ audited financial information. Further, key accounting projects proposed by the International Accounting Standards Board (IASB) for finalization subsequent to the 2011 implementation of IFRS will also significantly impact FRFIs and OSFI. There are two key projects that will impact banks and insurers: replacement of financial instruments and insurance contracts Phase II. The financial instruments project proposes increased use of fair value and expected losses provisioning for loans. The Phase II project proposes to fundamentally change the valuation of insurance liabilities and recognized revenue. The impacts of the changes for these projects are extensive in that they will not only change the accounting, but will also significantly impact loan values and provisions, actuarial standards, and the regulatory capital regime. As a reliance-based regulator, it is crucial that OSFI anticipate, understand and, when practicable, influence such changes so that OSFI will continue to be able to perform accurate risk assessments of financial institutions and will be able to adjust the regulatory capital framework as required.
Expenditure Profile
In accordance with the Treasury Board Secretariat’s Guide to the Preparation of Part III of the 2011-2012 Estimates, the financial and human resources presented in this Report on Plans and Priorities reflect OSFI’s approved Annual Reference Level Update (ARLU) estimates, which were prepared in early summer 2010. At the time of writing this Report on Plans and Priorities (RPP), OSFI was completing its business planning process for fiscal years 2011-2012 to 2013-2014 and assessing its capacity requirements. As a result, changes to OSFI’s approved ARLU estimates will be reflected in next year’s RPP.
During the 2011-2014 planning period, OSFI will focus on responding to risks emanating from the economy and from regulatory reforms, primarily in insurance, banking and accounting (IFRS). The global economic recovery is expected to be prolonged and the process of repairing the international financial sector is likely to be protracted. The risks posed by the current environment, both at the level of the economy and within the financial sector, continue to be of concern for OSFI.
On the regulatory front, OSFI will be implementing fundamental changes to how it supervises insurance companies by taking on a much larger role in verifying actuarial assumptions of each federally regulated insurance company. OSFI will also be determining the impacts of the fundamental redesign of global banking regulation on the capital levels of Canada’s banks. Lastly, expected new, but as yet undetermined, accounting rule changes could have major impacts on the life insurance industry in particular. Accordingly, increases to the resource levels presented in these tables are foreseen, particularly in the Regulation and Supervision of Federally Regulated Financial Institutions program activity where expertise in technical skills are required to deal with the issues outlined above.
Changes identified during OSFI’s business planning process, which was completed in December 2010, have been incorporated into the future-oriented financial statement.
| ($ millions except for percentages) | Actual Spending |
Forecast Spending |
Planned Spending | ||
|---|---|---|---|---|---|
| 2009-2010 | 2010-2011 | 2011-2012 | 2012-2013 | 2013-2014 | |
| Gross Expenditures | 100.9 | 110.7 | $117.6 | $115.5 | $117.9 |
| Change from previous year | 9.7 % | 6.2 % | (1.8 %) | 2.1 % | |
| Less: | |||||
| Respendable Revenue | 111.1 | 109.8 | 116.7 | 114.6 | 117.0 |
| Total Planned Spending | (10.2) | 0.9 | 0.9 | 0.9 | 0.9 |
Total gross expenditures in 2010-2011 are forecasted to increase by 9.7% from the previous year, to $110.7 million, primarily due to the increase in human resources and the full-year impact in 2010-2011 of employees hired during 2009-2010 (which in combination, result in a growth of 27 full-time equivalents), a 30 basis point increase in the employee benefits rate charged by Treasury Board, normal inflationary and merit adjustments and continued annual investments in information systems related to the Private Pension Plans program activity, systems updates and renewal of core infrastructure and selected applications.
Total gross expenditures in 2011-2012 are planned to increase by 6.2% over 2010-2011 forecast, to $117.6 million, mainly due to an increase of 1.1% in full-time equivalents, normal inflationary and merit adjustments and investments in information systems as noted above. Gross expenditures for 2012-2013 are planned at $115.5 million, or a year-over-year reduction of 1.8%, due to the planned completion of the Risk Assessment System for Pensions (RASP) project in 2011-2012 and the shifting of completion timelines of some information management / information technology projects. The growth in 2013-2014 is due to normal inflationary and merit adjustments. As noted above, however, OSFI is currently completing its business planning cycle and the planned increases in resources has been incorporated into the future-oriented financial statements and will be reflected in the body of next year’s Reports on Plans and Priorities.
Net of Respendable Revenues, total planned spending is $0.9 million for each of the planning years. This amount is assumed to remain unchanged over the planning horizon but may be adjusted by Treasury Board to reflect changes in collective agreements or continued cost constraint measures.
Figure 1 below provides a trend of OSFI’s actual and planned expenditures and full-time equivalents (FTEs) over the fiscal years 2005-2006 to 2013-2014. The growth in FTEs starting in late 2007-2008 through to 2009-2010 was driven by the global financial market turmoil, which began in August 2007, and the serious economic downturn in the following year while financial market turmoil still prevailed. During this period, OSFI added staff in specialized areas in order to more intensely monitor and assess risk in the financial sector. In the current planning period, OSFI is expecting to further increase its staff complement to address the increased volume and complexity of its work, new initiatives and new international commitments as a result of the lessons learned from the global financial crisis, to implement the significant regulatory reforms and implement OSFI’s approved Information Management/Information Technology (IM/IT) Strategy.
OSFI continues to re-evaluate its programs to ensure that they contribute to OSFI’s mandate and are efficiently managed. In so doing, OSFI has been successful at minimizing ongoing operating cost increases and at judiciously managing its human resources in optimal ways.
Figure 1
OSFI Expenditures and FTE - Planned and Actuals (2005-2006 to 2013-2014)
Estimates by Vote
Estimates by Vote are presented in the 2011–12 Main
Estimates which are available here:
http://www.tbs-sct.gc.ca/est-pre/20112012/me-bpd/info/info-eng.asp.
Section II – Analysis of Program Activities by Strategic Outcome
The following section describes OSFI’s program activities and identifies the expected results, performance indicators and targets for each of them. This section also explains how OSFI plans on meeting the expected results and presents the financial and non-financial resources that will be dedicated to each program activity.
2.1 Strategic Outcome One – A safe and sound Canadian financial system.
| Human Resources (FTEs) and Planned Spending ($ millions) | |||||
|---|---|---|---|---|---|
| 2011–2012 | 2012–2013 | 2013–2014 | |||
| FTEs | Planned Spending | FTEs | Planned Spending | FTEs | Planned Spending |
| 341 | 57.8 | 339 | 58.9 | 339 | 60.5 |
| Program Activity Expected Results | Performance Indicators | Targets |
|---|---|---|
| Protect depositors and policy holders while recognizing that all failures cannot be prevented. | Percentage of estimated recoveries on failed institutions. (amount recovered per dollar of claim) | 90% |
| Accurate risk assessments. | Percentage of knowledgeable observers3 who agree that their institution's Composite Risk Rating is appropriate. | 70% |
| Timely and effective intervention and feedback. | Time to issue Supervisory Letter. (within prescribed target days) | 80% of letters are issued within 45 days |
| Regulations, guidance and other rules that balance prudential considerations and the need to compete. | Percentage of knowledgeable observers3 who rate OSFI as good or very good at developing regulations, guidelines and other rules that strike an appropriate balance between prudential considerations and the need for institutions to compete. | 50% |
| Regulations, guidance and other rules which are clear and scrutinized by industry. |
Percentage of knowledgeable observers3 that rate OSFI's guidance as somewhat or
very effective in providing an indication of OSFI's
expectation. |
75%
|
| Prudentially sound decisions which are transparent. | Percentage of knowledgeable observers3 who understand somewhat or very well the basis upon which OSFI makes its decisions as part of the approval process. | 85% |
| Regulatory approvals which are timely. | Percentage of completed applications for regulatory approvals that are processed within established performance standards. | 90% |
3 Senior Executives and professionals who act on behalf of federally regulated financial institutions.
This program involves regulating and supervising FRFIs to determine whether they are in sound financial condition and are complying with their governing law and supervisory requirements; monitor system-wide or sectoral issuesthat may impact FRFIs negatively; and intervening in a timely manner to protect depositors and policyholders from undue loss, while recognizing that management and boards of directors are ultimately responsible, and that financial institutions can fail.
Costs for this program are recovered through base assessments and user fees and charges covered under the Bank Act, Trust and Loan Companies Act, Insurance Companies Act and Cooperative Credit Associations Act. OSFI also provides supervision services to the provinces, for which its costs are recovered on a fee for service basis.
This program has three sub-activities:
- Risk Assessment and Intervention: This program involves the administration and application of an effective supervisory process to assess the safety and soundness of FRFIs by evaluating an institution’s risk profile, financial condition, risk management processes, and compliance with applicable laws and regulations. This program includes activities to monitor and supervise financial institutions; monitor industry and environmental factors to identify emerging risks; and intervene by exercising supervisory powers to take, or require management or boards to take, necessary corrective measures in a timely manner to protect depositors and policy holders, while recognizing that all failures cannot be prevented.
- Regulation and Guidance: This program involves advancing and administering a regulatory framework that promotes the adoption of sound risk management practices, policies and procedures. This program encompasses the development of regulations, the issuance of guidance, providing input into federal legislation and regulations affecting financial institutions; contributions to accounting, auditing and actuarial standards; and involvement in international regulatory activities.
- Approvals and Precedents: Federally regulated financial institutions are required to seek regulatory approval for certain types of transactions. This program: evaluates and processes applications for regulatory consent; establishes positions on the interpretation and application of the federal financial institutions legislation and regulations; identifies precedential transactions that may raise policy issues and develops rulings that recognize the need to allow institutions to compete effectively while undertaking reasonable risks that do not unduly impact OSFI’s primary stakeholders, the policyholders and depositors of FRFIs.
In order to achieve the expected result, OSFI plans to undertake the following:
- Improve our ability to identify, monitor and report on
emerging risks including system-wide risks that may have a
material impact on the Canadian financial system:
- Enhance OSFI’s use of stress testing to better assess risk and capital adequacy.
- Perform selected comparative reviews of FRFIs in key risk areas, such as Structural Interest Rate Risk (SIRR), or Asset Liability Management (ALM) risk.
- Internationally, continue to participate in discussions (such as the Financial Stability Board (FSB), the Basel Committee on Banking Supervision (BCBS), the International Association of Insurance Supervisors (IAIS), and Senior Supervisors Group (SSG)) to identify and respond to the key issues arising from global financial events, including future changes to regulatory approaches and requirements, and to make recommendations for action. Domestically, continue work with Financial Institutions Supervisory Committee (FISC) partners and the regulated industries on similar issues in the Canadian context.
- Put into practice updates made to the Supervisory Framework including an enhanced Quality Assurance process.
- Maintain strong communications and continue to promote improved risk management practices with FRFIs.
- Enhance risk sensitivity of capital requirements in the insurance sector.
- Ensure that capital adequacy rules are interpreted and operationalized effectively and consistently within industry sectors.
- Continue to implement the transition to IFRS by assessing the impact on FRFIs and pension plans, and by addressing implications to OSFI’s prudential regime, regulatory policies, and regulatory returns.
- Continue to work with a variety of stakeholders on various IFRS issues including Insurance Contracts Phase II to understand the future impact on OSFI's reliance based regime and on insurers.
A prudentially sound financial system, in which depositors and
policy holders have a high degree of confidence, materially
contributes to Canada’s economic performance. OSFI is the
primary regulator and supervisor of all federally registered
financial institutions, numbering about 450. The achievement of
OSFI’s strategic objectives, which are shared by partners
within government and the financial institutions OSFI regulates,
provides the foundation upon which the Canadian economy has the
potential to be both productive and competitive.
Canadians will continue to benefit from a regulatory environment which encourages sound risk management practices and discourages excessive risk taking.
OSFI supports the government’s priority regarding issues of safety and security by contributing to the fight against money laundering and the financing of terrorism. As an example, by providing consolidated lists of officially listed terrorists and terrorist organizations, OSFI is assisting financial institutions with their legal obligations to identify and freeze assets of these individuals and entities. In addition, in conjunction with Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), OSFI conducts reviews of anti-money laundering / anti-terrorism financing programs established by financial institutions.
| Human Resources (FTEs) and Planned Spending ($ millions) | |||||
|---|---|---|---|---|---|
| 2011–2012 | 2012–2013 | 2013–2014 | |||
| FTEs | Planned Spending | FTEs | Planned Spending | FTEs | Planned Spending |
| 26 | 5.6 | 26 | 4.6 | 26 | 4.7 |
| Program Activity Expected Results | Performance Indicators | Targets |
|---|---|---|
| Protect the financial interests of federally regulated private pension plan members and beneficiaries. | Percentage of estimated recoveries on pension plans that have terminated under-funded. | 85% |
| Regulations, guidelines and other rules which are clear and balanced. |
Percentage of knowledgeable observers4 that rate OSFI's guidance as somewhat or
very effective in providing an indication of OSFI's
expectation. |
75%
|
| Regulatory approvals which are timely and transparent. |
Percentage of knowledgeable observers4 that understand somewhat or very well
the basis upon which OSFI makes its decisions as part of
the approval process. |
60%
|
4 Plan Administrators and professionals who act on behalf of pension plans.
This program involves regulating and supervising federally regulated private pension plans to determine whether they are meeting minimum plan funding requirements and are complying with their governing law and supervisory requirements. This program provides risk assessments of pension plans covering employees in federally regulated areas of employment; timely and effective intervention and feedback to protect the financial interests of plan members and beneficiaries from undue loss, while recognizing that plan administrators are ultimately responsible, and that plans can fail; a balanced relevant regulatory framework; and a prudentially effective and responsive approvals process. This program incorporates risk assessment and intervention, regulation and guidance, and approvals and precedents related to federally regulated private pension plans under the Pension Benefits Standards Act, 1985. The costs for this program are recovered from pension plan fees based on the number of members in each federally regulated pension plan.
In order to achieve the expected results, OSFI plans to undertake, in addition to ongoing activities, the following initiatives:
- Build, test and implement systems to support the pensions risk assessment framework published in 2009;
- Update and enhance guidance for pension plans to support recent amendments to thelegislation and regulations and new supervisory priorities5; and
- Refine the monitoring of risks facing pension plans, including the impact of rule changes, and adjust supervisory processes as warranted.
5 This includes guidance on stress testing, investments, disclosure guideline as a result of changes to the Pension Benefits Standards Act, 1985.
OSFI supports the government’s priority for income security for Canadians. OSFI supervises 1,398 federally regulated private pension plans in Canada, which cover 637,000 active members as at March 31, 2010. OSFI works to promote responsible pension plan governance and actuarial practices. OSFI’s actions and decisions affect plan members as well as the sponsors and administrators of the plans.
Program Activity Summary
This program incorporates activities related to providing assistance to selected developing and emerging market economies to improve their supervisory systems in line with international banking and insurance supervisory standards, thereby enhancing the stability of the global financial system. In order to achieve efficiency and economy in program delivery and training of supervisors from many different jurisdictions, this program also collaborates with a number of regional banking and insurance associations and other technical assistance providers such as the Financial Stability Institute. The costs for this program are recovered via Memoranda of Understanding between OSFI and the Canadian International Development Agency.
Effective March 31, 2010, OSFI ceased its International Assistance program activity, which provided technical assistance to supervisory systems in emerging market economies. The Canadian International Development Agency (CIDA) has continued the program in partnership with the Toronto International Leadership Centre for Financial Sector Supervision.
OSFI's Program Activity Architecture is expected to be modified during 2011-2012 to reflect the elimination of this program activity, through an annual update process coordinated by the Treasury Board Secretariat.
2.2 Strategic Outcome Two – A financially sound and sustainable Canadian public retirement income system.
| Human Resources (FTEs) and Planned Spending ($ millions) | |||||
|---|---|---|---|---|---|
| 2011–2012 | 2012–2013 | 2013–2014 | |||
| FTEs | Planned Spending | FTEs | Planned Spending | FTEs | Planned Spending |
| 33 | 4.5 | 33 | 4.6 | 33 | 4.7 |
| Program Activity Expected Results | Performance Indicators | Targets |
|---|---|---|
| Stewards of Canada’s public retirement income system are provided with independent, accurate, high quality and timely professional actuarial services and advice. |
Adequacy of professional experience of the Chief Actuary
and his staff. |
Unanimous agreement amongst peers* |
| Accurate and high quality actuarial valuations inform CPP and OAS stakeholders and Canadians of the current and projected financial status of the Plan and Program. |
Reviews are comprehensive (methods, assumptions,
analysis) AND/OR Percentage of the recommendations within the scope and influence of the OCA that are implemented before the next peer review. |
Unanimous agreement amongst peers*
|
| CPP and OAS Triennial Actuarial Reports | Timeliness of tabling in Parliament of Reports on Canada Pension Plans & Old Age Security. | 100% by the deadline |
| Accurate and high quality actuarial valuations of Public Pension and Insurance Plans provided to departments to inform design, funding and administration of plans. |
Reviews are comprehensive (methods, assumptions,
analysis). |
Unanimous agreement amongst peers* |
| Public Sector Triennial Actuarial Reports | Timeliness of tabling in Parliament of Reports on Public Pension Plans. | 100% by the deadline |
| Accurate and high quality actuarial valuations of the Canada Student Loans Program inform the Department of Human Resources and Skills Development Canada (HRSDC) of the future costs and provision rates of the program. | Actuarial valuations of the Canada Student Loans Program are comprehensive (accurate, high quality) and informative of future costs and provision rates of the program. | Annual renewal of the MOU with HRSDC |
| Actuarial Report on the Canada Student Loans Program |
Timeliness of tabling in Parliament of Reports on Canada Student Loans. |
100% by the deadline set by HRSDC |
| * Independently selected panel of peers. | ||
The federal government and the provinces, through the Canada Pension Plan (CPP), public sector pension arrangements and other social programs have made commitments to Canadians and have taken on emanated responsibility for the financing of these commitments. Some are long-term and it is important that decision-makers, Parliamentarians and the public understand these and the inherent risks. This program activity plays a vital and independent role in this process. It provides checks and balances on the future costs of the different pension plans under its responsibilities.
This program activity provides a range of actuarial services to the stewards of the CPP and some federal government departments. As required by legislation, it conducts statutory actuarial valuations of the CPP, Old Age Security (OAS) and Canada Student Loans programs, and pension and benefits plans covering the Federal Public Service, the Canadian Forces, the Royal Canadian Mounted Police (RCMP), federally appointed judges, and Members of Parliament.
The Office of the Chief Actuary (OCA) is funded by fees charged for its actuarial valuation and advisory services and by an annual parliamentary appropriation.
This program has three sub-activities:
- Services to the CPP and OAS Program: This program involves the conduct of statutory actuarial valuations of the CPP and OAS Program. These valuations estimate the financial status of these plans and programs as required by legislation. This program estimates long-term expenditures, revenues and current liabilities of the CPP and estimates long-term future expenditures for OAS programs. Pursuant to the Canada Pension Plan and the Public Pensions Reporting Act, the OCA prepares statutory triennial actuarial reports on the financial status of these programs, as required by legislation.
- Services to Public Sector Pension and Insurance Programs: This program involves the conduct of statutory actuarial valuations of various federal public sector employee pension and insurance plans. These valuations estimate the financial status of these plans as required by legislation. Pursuant to the Public Pensions Reporting Act, this program involves preparing statutory triennial actuarial reports on the financial status of federal public sector employee pension and insurance plans covering the federal Public Service, the Canadian Forces, the Royal Canadian Mounted Police, the federally appointed judges and Members of Parliament. This program supports plan members, thereby serving the public interest, by ensuring good governance of the plan, appropriate disclosure in the actuarial reports and contributing to the overall accountability of the plan sponsor to members. This program also involves the provision of sound actuarial advice that assists different government departments in the design, funding and administration of these plans. As part of this program, the Chief Actuary submits the actuarial reports to the President of Treasury Board, with the exception of the Actuarial Report on the RCMP (Dependants) Pension Fund, which is submitted to the Minister of Finance.
- Services to the Canada Student Loans Program
(CSLP): Pursuant to the Canada Student
Financial Assistance Act, this program involves the
conduct of statutory actuarial valuations of the CSLP. The
program also involves the preparation of a statutory actuarial
reportof the CSLP by evaluating the portfolio of loans and the
long-term costs of the program. As part of this program, the
Chief Actuary submits the actuarial report to the Minister of
Human Resources and Skills Development Canada.
In order to achieve the expected results, OSFI plans to undertake the following activities:
- The Actuarial Reports for the OAS, CSLP, CFSA-Regular
Force, the CFSA-Reserve Force, and the Regular Force Death
Benefit Account will be sent to the appropriate
Minister.
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. While OSFI does not supervise public pensions, the OCA prepares statutory actuarial reports on various public pension programs, to come to conclusions about the financial sustainability under certain assumptions. In this way, the OCA provides appropriate checks and balances on the future costs of the different pension plans and social programs that fall under its responsibilities.
2.3 Program Activity: Internal Services
| Human Resources (FTEs) and Planned Spending ($ millions) | |||||
|---|---|---|---|---|---|
| 2011–2012 | 2012–2013 | 2013–2014 | |||
| FTEs | Planned Spending | FTEs | Planned Spending | FTEs | Planned Spending |
| 163 | 49.7 | 163 | 47.4 | 163 | 48.0 |
| Program Activity Expected Results | Performance Indicators | Targets |
|---|---|---|
| OSFI’s financial statements accurately reflect the financial position of OSFI. | An audit by the Office of the Auditor General attests that OSFI's financial statements present fairly, in all material respects, the financial position of OSFI at the year-end and the results of its operations and its cash flows for the year in accordance with GAAP. |
N/A |
| OSFI maintains or improves its strong performance on its Results-based Management Accountability Framework, (MAF) as assessed by Treasury Board from time to time. |
Treasury Board’s next assessment of OSFI’s MAF indicates equal or improved ratings, including in the two areas where, in the last assessment, Treasury Board suggested a need to focus. |
N/A |
|
Operational units within program support are efficient
and effective, i.e. deliver services at reasonable cost and
turn-around time relative to peers. |
Treasury Board’s audits of OSFI, in the scope of
its government-wide Horizontal Audits, confirm no material
findings for OSFI. |
N/A |
| A stable, committed and skilled workforce. | Knowledgeable observers6 are of the view that OSFI staff knowledge
is good or very good. AND Voluntary turnover reports are satisfactory. AND Employee Survey finds that OSFI employees are committed and the consolidated mean score of the Employee Survey has increased since the last survey. |
N/A |
| Multi-year Information and Technology Renewal (ITR) Program remains dynamic and evolves to accommodate OSFI's changing strategic directions, priorities and resource constraints. | ITR Program is implemented as per established timelines and targeted results are achieved. |
N/A |
6 Senior Executives, Plan Administrators, and professionals who act on behalf of federally regulated financial institutions and pension plans.
OSFI’s Internal Services program activity supports its two strategic outcomes. Activities include developing and implementing cost-effective, secure and reliable information management systems that contain relevant, accurate and timely internal and external data. These information systems are complemented by the development and delivery of effective financial, human resources and administration, security, communication and administrative policies, advice and guidance. The objective is to ensure that OSFI has the processes and systems in place to enable a motivated and skilled workforce to focus on its supervisory and regulatory activities.
For the 2011-2012 planning period, key planning highlights for OSFI’s Internal Services include:
- A High-Performing and Effective Workforce
- Continue to identify changing human resources requirements (through ongoing HR Planning including succession planning) to: ensure timely availability of qualified staff and the assignment of these resources based on identified risks and priority areas; implement strategic learning and development (training) plans; and
- An Enhanced Corporate Infrastructure
- Continue to implement the long-term strategies for Information Management and Information Technology necessary to support our evolving supervisory and regulatory activities.
Section III: Supplementary Information
3.1 Financial Highlights
The future-oriented financial highlights presented within this RPP are intended to serve as a general overview of OSFI’s operations. These financial highlights are prepared on an accrual basis to strengthen accountability and improve transparency and financial management and to provide relevant, reliable, comparable and understandable information to the primary users of OSFI’s financial statements. The primary users are the regulated financial institutions and private pension plans – that is, the paying stakeholders to whom OSFI is accountable – and their respective industry associations, who on the whole operate financially on an accrual basis based on standards applicable to publicly accountable enterprises (PAEs) in the CICA Handbook – Accounting.
The primary users of OSFI’s financial statements are required to adopt IFRS and OSFI will be doing the same effective April 1, 2011. Accordingly, the Forecast for 2011-2012 has been prepared in accordance with IFRS.
Future-oriented financial statements can be found on OSFI’s web site at: http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?ArticleID=1548.
| % Growth |
Estimated Results 2010–2011 |
Forecast 2011–2012 |
|
|---|---|---|---|
| Expenses | 12.1 | 112.0 | 125.5 |
| Total Expenses | 12.1 | 112.0 | 125.5 |
| Revenues | 12.1 | 112.0 | 125.5 |
| Total Revenues | 12.1 | 112.0 | 125.5 |
| Net Cost of Operations | 0 | 0 | 0 |
OSFI matches its revenues to its costs. The difference between the figures above and the planned spending amounts provided in other sections of the RPP is due to a different basis of accounting and relate to such items as non-respendable revenues, amortization, severance pay liability adjustment and accrued interest costs. For more information, refer to the full future-oriented financial statement found on OSFI’s Web site. In addition, the Forecast for 2011-2012, presented on a modified cash basis, includes an increase of $10.2 million, or an 8.7% increase over the planned spending for 2011-2012 provided in this report. The increase is largely related to additional resource requirements and OSFI’s continued investments in information systems, as explained in the “Expenditure Profile” section of this report. This also accounts for the year-over-year increase of 12.1% in revenues and expenses in 2011-2012 on an accrual basis.
3.2 List of Tables
All electronic supplementary information tables which accompany the 2011–2012 Report on Plans and Priorities can be found on the Treasury Board of Canada Secretariat’s web site at: http://www.tbs-sct.gc.ca/rpp/st-ts-eng.asp.
The following tables are available on the TBS web site:
- Greening Government Operations
- Internal Audits
- Sources of Respendable and Non-Respendable Revenue
- Summary of Capital Spending by Program Activity
3.3 Other Items of Interest
OSFI Plan and Priorities 2011-2014, available on OSFI’s web site at: http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?DetailID=1249