ARCHIVED - RPP 2006-2007
Office of the Superintendent of Financial Institutions Canada

• Previous Page
• Table of Contents
• Next Page

This page has been archived.

SECTION III - SUPPLEMENTARY INFORMATION

Management Representation Statement

I submit for tabling in Parliament, the 2006-2007 to 2008-2009 Report on Plans and Priorities (RPP) for the Office of the Superintendent of Financial Institutions Canada.

This document has been prepared based on the reporting principles contained in the Guide to the preparation of Part III of the 2006-2007 Estimates: Reports on Plans and Priorities and Departmental Performance Reports.

• It adheres to the specific reporting requirements outlined in the TBS guidance;
• It is based on OSFI's approved Program Activity Architecture (PAA) structure as reflected in its MRRS;
• It presents consistent, comprehensive, balanced and reliable information;
• It provides a basis of accountability for the results achieved with the resources and authorities entrusted to it; and
• It reports finances based on approved, planned spending numbers from the Treasury Board Secretariat in the RPP.

---

Nicholas Le Pan
Superintendent

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. In addition, there is an independent Internal Audit and Consulting function that reports directly to the Superintendent. The Office of the Chief Actuary (OCA) 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.

Enlarge Image

Workforce

As at December 31, 2005, OSFI employed 427 people in offices located in Ottawa, Montreal, Toronto and Vancouver.

OSFI's work requires the effort and attention of multidisciplinary teams. It requires a combination of broad perspective and in-depth expertise. OSFI builds excellence into its culture, and encourages continuous learning through teamwork, professional development and training opportunities, and the provision and support of advanced technologies.

OSFI's unique work environment benefits from a full spectrum of professional experience and expertise, drawing on the talents of recent graduates, as well as seasoned industry and regulatory experts.

Chart of Full-Time Equivalent Headcount

Sector	As at March 31, 2005	% of total	As at December 31, 2005	% of total
Corporate Services*	111	26%	118	28%
Supervision**	165	39%	159	37%
Regulation**	124	29%	124	29%
Office of the Chief Actuary	26	6%	26	6%
TOTAL	426	100%	427	100%

* The change in Corporate Services is in support of major technology initiatives; where appropriate, projects are staffed with term positions that coincide with the project's duration. Corporate Services includes employees in the Superintendent's Office and in Audit and Consulting Services.

** In August 2005, the Private Pension Plan Division became part of the Regulation Sector, whereas it had previously been part of the Supervision Sector. The March 31, 2005 figures have been restated to reflect this change.

Key Partners

OSFI works with a number of key partners in advancing its strategic outcomes. Together, these departments and agencies constitute Canada's network of financial regulation and supervision and provide a system of deposit insurance. On a federal level, partnering organizations include the Department of Finance (http://www.fin.gc.ca), the Bank of Canada (http://www.bank-banque-canada.ca), the Canada Deposit Insurance Corporation (http://www.cdic.ca), the Financial Consumer Agency of Canada (http://www.fcac-acfc.gc.ca), and the Financial Transactions and Reports Analysis Centre of Canada (http://www.fintrac.gc.ca), among others.

In addition, OSFI collaborates with certain 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 the International Association of Insurance Supervisors (http://www.iaisweb.org) and international organizations such as the Basel Committee on Banking Supervision (http://www.bis.org/bcbs/index.htm).

Maintaining good relationships with these organizations is critical to OSFI's success. OSFI reviews, on an annual basis, its involvement with these organizations to ensure it is maximizing the effective use of resources.

Financial and Other Tables

This section presents a number of financial tables that detail OSFI's Expenditures and Revenues for the planning period. Tables 1 to 7 are provided in accordance with Treasury Board requirements. The remaining tables offer additional information on User Fees and Regulatory Initiatives.

Background

OSFI recovers its costs from several revenue sources. Costs for risk assessment and intervention (supervision), approvals and rule making are charged to the financial institutions and private pension plans that OSFI regulates and supervises.

The amount charged to individual institutions for OSFI's main activities of supervision, approvals and rule making is determined in several ways. In general, the system is designed to allocate costs based on the approximate amount of time spent supervising and regulating institutions. As a result, well-managed, lower-risk institutions and those with fewer approvals bear a smaller share of OSFI's costs.

Specific user fees cover costs for certain approvals. Problem (staged) institutions are assessed a surcharge approximating the extra supervision resources required.

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 whom OSFI does supervision on contract, and revenues from other federal agencies for whom OSFI provides administrative support. Cost-recovered services revenue also includes amounts charged separately to major banks for the implementation of the internal ratings-based approach of the New Basel Capital Accord.

The remainder of the costs of risk assessment and intervention, approvals and rule making are recovered through base assessments against institutions and private pension plans fees according to various formulae.

On April 1, 2002, OSFI began collecting late and erroneous filing penalties from financial institutions that submit late and/or erroneous financial and non-financial returns. On August 31, 2005, the Administrative Monetary Penalties (OSFI) Regulations came into force. These Regulations implement an administrative monetary penalties regime pursuant to which the Superintendent can impose penalties in respect of specific violations, as designated in the schedule to the Regulations. These Regulations incorporate the late and erroneous filing penalty regime and replace the Filing Penalties (OSFI) Regulations, which came into force on April 1, 2002. These penalties are billed quarterly, collected and remitted to the Consolidated Revenue Fund. By regulation, OSFI cannot use these funds, which are recorded as non-respendable revenue, to reduce the amount that it assesses the industry in respect of its operating costs.

The Office of the Chief Actuary is funded by fees charged for actuarial services and in part by an annual parliamentary appropriation for services to the Government of Canada related to public pensions. OSFI's financial statements are prepared using Generally Accepted Accounting Principles (GAAP), are audited annually by the Office of the Auditor General and are published in OSFI's Annual Report. OSFI's annual reports can be accessed at http://www.osfi-bsif.gc.ca/osfi/index-eng.aspx?DetailID=647.

Financial Tables

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. As a result, OSFI's human resources (average FTEs) remain flat over the planning period.

Total spending over the planning period is increasing at about 4% per year driven primarily by normal inflationary and merit adjustments and continued annual capital investments. These investments in enabling technologies, information management strategies, and information technology infrastructure are consistent with OSFI's priority on resources and infrastructure during the planning period.

The total planned spending for 2005-2006 is $755 thousand. The planned increase to $768 thousand in 2006-2008 and beyond is related to adjustments granted by the Treasury Board for collective agreements for the Office of the Chief Actuary.

OSFI's total planned spending and average full-time equivalent (FTE) complement over the three-year planning period are displayed in the following table.

Table 1:
OSFI Planned Spending and Full-Time Equivalents

($ thousands)	Forecast Spending 2005-2006	Planned Spending 2006-2007	Planned Spending 2007-2008	Planned Spending 2008-2009
Regulation and supervision of federally regulated financial institutions	70,359	73,177	76,342	79,640
Regulation and supervision of federally regulated private pension plans	5,504	5,184	5,375	5,576
International Assistance	1,746	1,958	2,007	2,058
Office of the Chief Actuary (OCA)	4,620	4,714	4,912	5,119
Budgetary Main Estimates (gross)	82,229	85,033	88,636	92,393
Non-Budgetary Main Estimates (gross)	0	0	0	0
Less: Respendable revenue	81,474	84,265	87,868	91,625
Total Main Estimates	755	768	768	768
Adjustments:	0	0	0	0
Total Adjustments	0	0	0	0
Total Planned Spending	755	768	768	768
Total Planned Spending	755	768	768	768
Less: Non-respendable revenue	430	425	425	425
Plus: Cost of services received without charge	0	80	0	0
Net cost of Program	325	423	343	343

Full-Time Equivalents

439

459

459

459

Table 2:
Program by Activity ($ thousands)

The next table outlines OSFI's 2006-2007 expenditures by Activity.

The expenditures of each activity in Table 2 include a share of OSFI's Corporate Services costs, which have been allocated in a consistent manner to accurately reflect the total cost of each activity; to support equitable billing; and to support the Treasury Board requirement to understand Government-Wide Corporate Services and fully-loaded program costs. OSFI's largest activity is the Regulation and Supervision of federally regulated financial institutions, which utilizes approximately 85% of OSFI's resources. The net cost of the Office of the Chief Actuary activity is funded by an annual parliamentary appropriation for actuarial services to the Government of Canada related to Public Pensions.

Enlarge Image

Note: Corporate Services costs are allocated across the activities based on direct human resources costs.

Table 3:
Summary of Capital Spending by Program Activity

As indicated in the commentary for Table 1, OSFI continues to develop cost-effective information management systems to maintain robust technology infrastructure necessary to support its supervisory and regulatory activities. The table below details OSFI's planned capital investments by program activity.

Summary of Capital Spending by Program Activity

($ thousands)	Forecast Spending 2005-2006	Planned Spending 2006-2007	Planned Spending 2007-2008	Planned Spending 2008-2009
Office of the Superintendent of Financial Institutions
Regulation and supervision of federally regulated financial institutions	3,712	3,696	4,196	4,696
Regulation and supervision of federally regulated private pension plans	252	246	246	246
International Assistance	57	63	63	63
Office of the Chief Actuary (OCA)	0	32	32	32
Total	4,021	4,037	4,537	5,037

Table 4 illustrates sources of respendable and non-respendable revenue presented on the cash basis, however OSFI recovers its costs through assessments and user fees billed on the accrual basis of accounting.¹ On this basis, the expected assessment increase for 2006-2007 will be in the range of 5%.

The bulk of cost recovered services in Regulation and Supervision of Federally Regulated Financial Institutions in 2006-2007 and 2007-2008 relates to the Internal Ratings Based (IRB) implementation project that is charged directly to the major banks. The user fees and charges planned for 2006-2007 and beyond for this same program activity are based on regulations that were in effect at the time of preparation of the Main Estimates. However, effective April 1, 2006, these regulations will be amended to reduce the number and types of approvals that require user fees; as such, this will result in lower user fees than currently planned. The reduction in user fees will be recovered through base assessments. OSFI's 2007-2008 Annual Reference Level Update (ARLU) will take into account this change in regulations.

---

¹ OSFI's financial statements are prepared using GAAP, are audited annually by the Office of the Auditor General and are published in OSFI's Annual Report. OSFI's annual reports can be accessed at http://www.osfi-bsif.gc.ca/osfi/index-eng.aspx?DetailID=647

Table 4:
Sources of Respendable and Non-Respendable Revenue

($ thousands)	Forecast Revenue 2005-2006	Planned Revenue 2006-2007	Planned Revenue 2007-2008	Planned Revenue 2008-2009
Office of the Superintendent of Financial Institutions Regulation and supervision of federally regulated financial institutions Sources of respendable revenue
Base Assessments	60,908	64,733	68,096	71,602
User Fees and Charges	4,927	5,019	5,019	5,019
Cost Recovered Services	4,524	3,425	3,227	3,020
	70,359	73,177	76,342	79,641
Regulation and supervision of federally regulated private pension plans Source of respendable revenue
Pension Fees	5,504	5,184	5,375	5,575
	5,504	5,184	5,375	5,575
International Assistance Sources of respendable revenue
Base Assessments	446	483	532	583
Cost Recovered Services	1,300	1,475	1,475	1,475
	1,746	1,958	2,007	2,058
Office of the Chief Actuary (OCA) Sources of respendable revenue
User Fees and Charges	73	35	35	35
Cost Recovered Services	3,792	3,911	4,109	4,316
	3,865	3,946	4,144	4,351
Total Respendable Revenue	81,474	84,265	87,868	91,625

Non-Respendable Revenue

($ thousands)	Forecast Revenue 2005-2006	Planned Revenue 2006-2007	Planned Revenue 2007-2008	Planned Revenue 2008-2009
Office of the Superintendent of Financial Institutions Regulation and supervision of federally regulated financial institutions Source of non-respendable revenue
Filing Penalties	430	425	425	425
Total Non-Respendable Revenue	430	425	425	425
Total Respendable and Non-respendable Revenue	81,904	84,690	88,293	92,050

Tables 5 and 6a provide additional information to illustrate total Government of Canada expenditures that are related to OSFI.

Table 5:
Net Cost of Agency for the Estimates Year 2006-2007

2006-2007
($ thousands)	Regulation and supervision of federally regulated financial institutions	Regulation and supervision of federally regulated private pension plans	Inter-national Assistance	Office of the Chief Actuary (OCA)	Total
Total Planned Spending	0	0	0	768	768
Plus: Services Received without Charge
Audit fees from the Office of the Auditor General	80				80
Less: Non-respendable Revenue	425				425
2006-2007 Net cost of Agency	(345)	0	0	768	423

Table 6a:
Voted Items Listed in Main Estimates

Vote Item	($ thousands)	2005-2006 Main Estimates	2006-2007 Main Estimates
35	Program expenditures	755	768
	Total Agency	755	768

Table 6b:
Statutory Items Listed in Main Estimates

Statutory Item	($ thousands)	2005-2006 Main Estimates	2006-2007 Main Estimates
(S)	Spending of revenues pursuant to subsection 17(2) of the Office of the Superintendent of Financial Institutions Act (R.S., 1985, c. 18 (3rd Supp.))	0	0
	Total Agency	0	0

Table 7:
Resource Requirements by Sector

Table 7 provides a breakdown of OSFI's resources requirements by Sector. Consistent with the methodology for the Program Activity Architecture (PAA), the Corporate Services Sector resources are allocated across OSFI's other three sectors (Regulation, Supervision, and Office of the Chief Actuary).

Resource Requirements by Sector

2006-2007
($ millions)	Regulation and supervision of federally regulated financial institutions	Regulation and supervision of federally regulated private pension plans	International Assistance	Office of the Chief Actuary (OCA)	Total Planned Spending
Regulation	$22.9	$5.2	$1.9		$30.0
Supervision	50.3				50.3
Office of the Chief Actuary				4.7	4.7
Total	$73.2	$5.2	$1.9	$4.7	$85.0

Table 8:
User Fees

Fee Type: R A fee is either identified as "Regulatory" ("R") or "Other Products and Services" ("O"). A Regulatory fee relates to an activity undertaken by a department that is integral to the effectiveness of a program and successful achievement of the program mandate requires moderating, directing, testing, or approving the actions of external parties.
Fee Setting Authority: OSFI Act
Effective date of planned change to take effect Effective date of regulations - targeted for April 1, 2006
Description of Document or Service	Reasons for Fee Introduction or Amendment	Planned Consultation and Review Process
Letters patent of amalgamation	Regulations are being proposed that would eliminate all user fees except those that are paid by non-Federally Regulated Financial Institutions (FRFIs), such as new applicants, and those that are charged for rulings, accreditations, interpretations, capital quality confirmations, and copies of corporate documents, which can be time consuming to process and are outside OSFI's core businesses. The proposed regulations would reduce the number of service charges from 51 to 14. The proposed regulations eliminate the majority of user fees, recognizing that the fees currently do not significantly redistribute OSFI's costs amongst FRFIs and that the fees do not recover a meaningful percentage of OSFI's annual costs. User fees currently recover less than four percent of OSFI's total regulatory and supervisory costs charged to institutions. Eliminating the majority of service charges has little impact on the total amounts individual FRFIs pay. Furthermore, the administration associated with the system, such as tracking, verifying, and reporting on services charges, is resource intensive and costly. Charges to non-FRFIs (e.g., new applicants) and for rulings, accreditations, interpretations, capital quality confirmations, and copies of corporate documents are being retained on the basis that charging for these services, which are not part of OSFI's normal course of regulation and supervision and are often resource intensive to process, represents a more equitable approach to recovering OSFI's costs associated with those services than would charging these services directly to FRFIs through base assessments.	Given that this policy will result in modest changes to the levels of assessments that some institutions will pay, selected FRFIs and industry associations were consulted. As well, each of the FRFIs that were consulted was provided with estimates of how the new policy would affect their institution. None of the industry associations and institutions expressed concerns with the proposal to reduce the number of service charges. The amended regulations were then published in the Canada Gazette to solicit further comments. No concerns were expressed at that time. The regulations will be published in final form upon approval by the Governor-in-Council. The original regulations and the amended regulations can be found on the Canada Gazette website at: Canada Gazette Part II, Vol. 136, No. 21, SOR/2002-337 and Canada Gazette Part II, Vol. 137, No. 18, SOR/2003-291 respectively. (These links are also available at: http://www.osfi-bsif.gc.ca/osfi/index-eng.aspx?DetailID=528.)
Approval of an agreement respecting the sale of all or substantially all assets
Approval of the acquisition or increase of a significant interest
Approval of a purchase, reinsurance or transfer of policies, a reinsurance against risks undertaken by the company, or a sale of assets
Approval of the acquisition of control of, or the acquisition or increase of a substantial investment in, an entity
Approval to retain control of, or to continue to hold a substantial investment in, an entity for longer than 90 days
Permission to retain control of, or to hold a substantial investment in, an entity for an indeterminate period
Approval, for an indeterminate period, to retain control of, or to hold a substantial investment in, an entity that was acquired by way of a loan workout or realization of a security interest
Order increasing the aggregate financial exposure limit
Authorization for the release of assets in Canada
Exemption from the requirement to maintain and process information or data in Canada
Approval of a time period to do all things necessary to relinquish control of, or a substantial investment in, an entity or to relinquish an increase to a substantial investment in an entity
Approval of a declaration of dividend in excess of net income
Letters patent of dissolution
Approval to return amounts transferred from segregated fund account
Approval of transactions that are part of the restructuring of a bank holding company or of an insurance holding company or any entity controlled by such a company and to which self-dealing provisions will not apply
Approval of asset transactions with a related party or of arrangements applying to such transactions
Short-term exemption order
Letters patent of, or approval of, continuance or amalgamation under any other Act of Parliament or any Act of the legislature of a province
Consent for purchase or redemption of shares or membership shares
Approval of special resolution for reduction of stated capital
Approval of the making or acquisition of commercial loans, or the acquisition of control of an entity that holds commercial loans, if the total value of commercial loans held exceeds the specified limit
Approval of amendment to by-laws to change name
Variation of an order approving the commencement and carrying on of business of a body corporate or approving the insuring in Canada of risks by a foreign body corporate
Approval for the issuance of shares or other securities in consideration for property
Approval to amend an incorporating instrument
Extension of the deadline to do all things necessary to relinquish control of, or a substantial investment in, an entity or to relinquish an increase to a substantial investment in an entity
Approval of an acquisition or a transfer of assets in excess of 10% of the total value of assets
Exemption from requirement to provide financial statements for non-bank affiliates
Approval of an acquisition or a transfer of assets in excess of 5% of the total value of assets from a related party that is not a federal financial institution
Approval to be reinsured by a related party that is not a company or foreign company
Approval of a deposit agreement or of a trust deed to maintain assets in Canada
Approval of an amendment to an approved asset-to-capital multiple or borrowing multiple
Approval of the issuance of subordinated debt to a parent
Consent for purchase or redemption of securities other than shares
Approval of a reinsurance trust agreement or of an amendment to a reinsurance trust agreement
Approval of a letter of credit in lieu of assets

Fee Type: O A fee is either identified as "Regulatory" ("R") or "Other Products and Services" ("O"). A Regulatory fee relates to an activity undertaken by a department that is integral to the effectiveness of a program and successful achievement of the program mandate requires moderating, directing, testing, or approving the actions of external parties.
Fee Setting Authority: OSFI Act
Effective date of planned change to take effect Effective date of regulations - targeted for April 1, 2006
Description of Document or Service	Reasons for Fee Introduction or Amendment	Planned Consultation and Review Process
Charge paid for actuarial services provided by the Chief Actuary in respect of requests for services ancillary to the mandate of the Chief Actuary	The regulations currently set out an hourly charge payable for certain actuarial services provided by the Chief Actuary. The hourly charge is no longer adequate in light of an increase in overhead costs of the Office of the Chief Actuary. Regulations are being proposed that would eliminate this fixed charge. After the coming into effect of the proposed Regulations, the hourly charge for these services will be published on OSFI's website at the beginning of each fiscal year, so as to maintain sufficient transparency and services will be contracted on an individual basis.	The proposal to repeal the set hourly charge was discussed during the Office of the Chief Actuary Consultation Committee meeting in March 2005. None of the stakeholders expressed concerns with this proposal. The amended regulations were then published in the Canada Gazette to solicit further comments. No concerns were expressed at that time. The regulations will be published in final form upon approval by the Governor-in-Council.

Table 9:
Major Regulatory Initiatives

Legislative Acts and/or Regulations	Purpose of regulatory initiative	Expected results
Order Amending the Schedule to the Insurance Companies Act (Classes of Insurance)	The Schedule to the Insurance Companies Act is being revised to reduce the current number of insurance classes and to form the basis for federal class definitions to be harmonized with most provincial and territorial definitions.	The number of insurance classes will be reduced from over 50 classes used by federal, provincial and territorial jurisdictions to 17 harmonized classes. Also, class definitions will be harmonized, which will reduce the administrative burden and cost to insurers.
Regulations Amending the Charges for Services Provided by the Office of the Superintendent of Financial Institutions Regulations 2002	The amendments will eliminate all service charges except (i) charges paid by non-Federally Regulated Financial Institutions, (e.g., new applicants); and (ii) charges paid for rulings, accreditations, interpretations, capital quality confirmations, and copies of corporate documents.	The Regulations will reduce the number of service charges from 52 to 14.
Regulations Amending the Investment Limits Regulations	The Regulations will be reviewed to determine (i) whether the investment limit for P & C companies adequately considers excess assets; and (ii) whether certain investments made by lifecos and DTIs for hedging purposes should be exempt from the equity investments limits.	The amendments under consideration would provide increased flexibility in the investment limits regime. It would also level the playing field with those FRFIs that are currently exempt from the limit.
Regulations Amending the Reinsurance (Canadian Companies) Regulations and the Reinsurance (Foreign Companies) Regulations	The Regulations will be amended primarily to clarify how they apply to the accident and sickness business of life insurance companies.	The key amendments under consideration will clarify that the Regulations apply to life insurance companies that write accident and sickness insurance and that all of the premium income (not only the accident and sickness premium income) should be included in the denominator for purposes of determining the reinsurance limit.
Pension Benefits Standards Act, 1985 and Regulations Amending the Pension Benefits Standards Regulations, 1985	An amendment being considered would increase temporarily the amortization period for making-up solvency deficiencies in federal defined benefit pension plans, subject to certain terms and conditions. Also being considered in the context of the Department of Finance review of the framework for defined benefit pension plans are amendments to the Pension Benefits Standards Act, 1985 and the Regulations that would, among other things: (i) permit letters of credit with certain characteristics to be recognized as pension assets in solvency valuations; (ii) void amendments to a pension plan if the solvency ratio of the plan falls below the prescribed level; (iii) require employers to pay into the plan, upon termination of the plan, the amount necessary to fund the full benefits promised to plan members; and (iv) provide funding flexibility to pension plans whose sponsor is restructuring under the CCAA, BIA, or WURA.	The amendments under consideration would provide more funding flexibility to plan sponsors and protect the interests of plan members and beneficiaries.

Table 10:
Internal Audits and Evaluations

Internal Audit	Estimated Start Date	Date Published / Estimated Completion Date
OSFI Contracting		July 19, 2005
Website Reference: http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/reports/osfi/audit_contract-eng.pdf
OSFI Travel & Hospitality		July 19, 2005
Website Reference: http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/reports/osfi/audit_th-eng.pdf
Managing Core Supervision Workflow (CSWS) Contract Payments		Sept. 9, 2005
Website Reference: http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/reports/osfi/audit_csws-eng.pdf
Financial Conglomerates Group (FCG)		March 2006
OSFI Training and Development		April 2006
2006/07 Plan to be approved by Audit Committee

• Previous Page
• Table of Contents
• Next Page