Performance against Priorities 2009–2010

OSFI’s role is to contribute to the safety and soundness of the Canadian financial system, while allowing federally regulated financial institutions and private pension plans to compete effectively and take reasonable risks. We balance competitiveness with prudence, international rules with Canadian market realities, and efficiency with thoroughness. This approach guided our performance during the continuing global economic challenges of 2009–2010 amid signs of recovery in the Canadian economy.

Last year’s Annual Report listed six priorities to achieve OSFI’s strategic outcomes for 2009–2010. This section reports major accomplishments under each of the priorities. OSFI achieved its goals for the reporting year and continues to work on these multi-year priorities. More details are available in various chapters of the report.

STEPS TAKEN

• Continued to strengthen the design and application of OSFI’s Supervisory Framework, building on years of experience in its use.
• Reorganized OSFI’s Supervision sector along industry lines to better focus risk assessment across large and small financial institutions.
• Planned and conducted comparative reviews for: credit cards, US home equity lines of credit (HELCO), Alt-A mortgages, securitization, derivatives collateral management, liquidity management, stress testing and compensation.
• Continued close monitoring of property and casualty insurance companies with significant auto insurance exposure.

STEPS TAKEN

• Continued active participation in international forums such as the Financial Stability Board (FSB), the Senior Supervisors Group, Basel Committee on Banking Supervision (BCBS), the International Association of Insurance Supervisors (IAIS), and other organizations to assess and agree on proposals to strengthen the financial sector regulation as a result of the crisis.
• Organized and hosted a College of Supervisors for each of two of the big five Canadian banks, in line with FSB recommendations, which brought executives from each bank together with supervisors from several jurisdictions where they do business.
• Participated in several international supervisory colleges, and developed information-sharing agreements with a number of host-country supervisory authorities that regulate significant foreign operations of Canadian banks and insurers.
• Continued to work closely with our FISC partners to monitor the resilience of the financial sector and discuss critical issues.
• Developed industry guidance for stress testing building on BCBS, IAIS, and existing OSFI principles.
• Held three Risk Management Seminars: second annual for deposit-taking institutions; first annual for life insurance companies, and for property and casual insurance companies.

STEPS TAKEN

• Addressed accounting and capital policy and reporting implications of moving to IFRS. Following extensive consultations with industry associations and other key stakeholders, an Advisory on the Conversion to International Financial Reporting Standards (IFRSs) by Federally Regulated Entities (FREs)² was published providing OSFI positions on accounting, capital and regulation treatments due to IFRS changes.
• Hosted industry risk management forums for deposit-taking institutions, life insurance companies, and property and casualty companies on the impact of IFRS on accounting and regulatory capital policies, expectations of FREs on IFRS implementation, and consequential reporting changes.
• Posted draft financial and regulatory reporting forms for FREs reflecting IFRS changes.
• Completed the selection of IFRS accounting and reporting solutions for OSFI and completed targeted milestones to ensure effective implementation.
• Completed the Information Management/Information technology (IM/IT) impact assessment for OSFI as a result of the move to IFRS.
• Commenced consultations on OSFI guidance requiring updates to reflect IFRS.

STEPS TAKEN

• Continued to work through the MCCSR Advisory Committee (MAC) to develop and incorporate more advanced risk measurement techniques (such as internal company models) into the MCCSR.
• Held discussions with the life insurance MAC about possible improvements to the current internal model capital valuation methodology for segregated funds and about a fundamental review of the current valuation methodology for segregated funds requirements.
• Revised MCCSR Guideline in late 2009 for life insurance companies, particularly in relation to the capital treatment of unregistered reinsurance. Also issued a draft version in early 2010 to incorporate amendments related to implementation of IFRS.
• Continued review of MCCSR with respect to measurement of capital requirements for life insurance companies, including for mortality risk improvement.
• Developed conceptual frameworks for assessing solo / stand-alone capital adequacy for better evaluation of insurance holding company capital adequacy, and commenced consultations with key affected institutions.
• Published Key Principles for the Future Direction of the Canadian Regulatory Capital Framework for Property & Casualty (P&C) Insurance in conjunction with the Property and Casualty Minimum Capital Test (MCT) Advisory Committee.
• Operationalized a robust Internal Capital Adequacy Assessment Program (ICAAP) review process and related risk measurement techniques to strengthen our ability to assess capital adequacy.
• Took an active role in the Basel Committee on Banking Supervision development of new rules on risk management and capital regulation, including the July 2009 changes to trading book rules and the December 2009 proposals to strengthen the resilience of the banking sector through enhanced capital, leverage and liquidity rules, and also on the development of Guiding principles for the revision of accounting standards for financial instruments issued by the Basel Committee.

STEPS TAKEN

• Applied OSFI’s HR planning process to ensure key resource and skill gaps were prioritized, and action plans developed and monitored.
• Continued to implement and monitor training and development programs consistent with needs analyses to ensure workforce capacity and skills were in place to meet work plans.
• Increased the staff complement to continue to respond to external pressures and to recruit specialized skills in areas such as research, credit and capital, which included strengthening Capital Division’s ability to deal with developments such as enhanced Basel rules on bank capital adequacy and increased use of models by insurance companies.
• Reviewed staffing needs to address gaps moving forward with IM/IT strategy.
• Conducted a review and risk assessment of our executive compensation structure in light of the Expenditure Restraint Act.
• Enhanced our business continuity and pandemic plan capacity.

STEPS TAKEN

• Completed IM/IT Strategy outlining a multi-year roadmap to address ‘end of life’ technologies and the modernization of OSFI’s application suite to increase business value and system flexibility and agility.
• Implemented portfolio management and optimized governance to provide oversight and accountability over IM/IT investments and ensure alignment with OSFI plans and priorities.
• Commissioned a review to be undertaken in 2010–2011 of OSFI’s returns processing system, the Tri-Agency Database System, to confirm ‘end of life’ and to recommend a replacement strategy.
• Completed the Pension Systems Renewal project for Private Pension Plan Approvals activity. In 2010–2011, OSFI will begin development of enabling technology to support Pension Plan Supervisory processes.