Government of Canada
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Financial Review
and Highlights

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 it regulates and supervises, and a user-pay program for legislative approvals and other selected services.

The amount charged to individual institutions for OSFI’s main activities of risk assessment and intervention (supervision), approvals and precedents, and regulation and guidance is determined in several ways, according to formulas set out in regulations. In general, the system is designed to allocate costs based on the approximate amount of time spent supervising and regulating each industry. Costs are then assessed to individual institutions within an industry based on the applicable formula, with a minimum assessment for smaller institutions.

Staged institutions are assessed a surcharge on their base assessment, approximating the extra supervision resources required. As a result, well-managed, lower-risk institutions bear a smaller share of OSFI’s costs.

OSFI also receives revenues for cost-recovered services. These include revenues from provinces for which OSFI provides supervision of their institutions on contract, federal Crown corporations such as the Canada Mortgage and Housing Corporation (CMHC), which OSFI supervises under the National Housing Act, and revenues from other federal organizations to which OSFI provides administrative services.

OSFI collects Administrative Monetary Penalties from financial institutions when they contravene a provision of a financial institutions Act and are charged in accordance with the Administrative Monetary Penalties (OSFI) Regulations. These penalties are collected and remitted to the Consolidated Revenue Fund. By regulation, OSFI cannot use these funds to reduce the amount that it assesses the industry in respect of its operating costs.

The Office of the Chief Actuary (OCA) is funded by fees charged for actuarial valuation and advisory services relating to the Canada Pension Plan Program, the Old Age Security Program, the Canada Student Loans Program and various public sector pension and insurance plans, and by a parliamentary appropriation.

Overall, OSFI fully recovered all its expenses for the fiscal year 2012-2013.

OSFI’s total expenses were $127.7 million, a $3.7 million, or 3.0%, increase from the previous year. Human resources costs, the main driver of OSFI’s expenses, rose by $3.3 million, or 3.5%. This was a result of staffing vacant positions across all sectors, the full year impact of the previous year’s incremental new hires and planned growth in employee compensation in accordance with collective agreements, and performance-related pay, which is available to employees at all levels within the organization. During the year, OSFI settled a pay equity claim dating from 1987 to 1997 that was previously provisioned for. As a result of the settlement, an amount of $3.0 million was reversed and recognized as a reduction in Human Resources Expenses.

OSFI’s average number of full-time equivalent employees during the year was 636, a 7.3% increase from the previous year. OSFI ended the year with an actual head count of 660, a 6.1% increase from its head count of 622 as at March 31, 2012. The increased head count reflects additional staff hired to supervise the CMHC and increases in OSFI’s staff complement in specialized skills such as economic research, credit risk and capital analysis to enhance its ability to guide and supervise federally regulated financial institutions in managing risks. OSFI also enhanced its specialization in the property and casualty and life insurance industries to support more sophisticated risk-sensitive capital rules and to fulfill international commitments.

Federally Regulated Financial Institutions

Revenues

Total revenues from federally regulated financial institutions were $114.0 million, an increase of $3.5 million, or 3.1%, from the previous year. Base assessments on financial institutions, which are recorded at an amount necessary to balance revenue and expenses after all other sources of revenue are taken into account, increased by $2.4 million, or 2.3%, from the previous year.

Revenues from user fees and charges increased by $0.3 million, or 7.1%, from the previous year due to a slight increase in surcharge assessments for staged institutions. While the number of staged institutions and the total number of staged months throughout the year decreased, changes to the mix of staged institutions resulted in a slight increase in assessments.  

Expenses

Total expenses were $114.0 million, an increase of $3.2 million, or 2.9%, from the previous year. Human resources costs rose as a result of filling vacancies during the year and the full year impact of positions filled in the previous year.

Base Assessments by Industry

Base assessments are differentiated to reflect the share of OSFI’s costs allocated to each industry group (base assessments are the costs allocated to an industry, less user fees and charges and cost-recovered services revenues). The chart below compares the growth of base assessments by industry group over the past five years.

Base Assessments By Industry
Cumulative Growth Rates from Fiscal Year 2008

Base Assessments By Industry: Cumulative Growth Rates from Fiscal Year 2008

[Text Version]

The increase in base assessments on the deposit-taking institutions (DTI) industry during the period from 2007-2008 to 2008-2009 reflects OSFI’s efforts on the New Capital Adequacy Framework (Basel II) implementation. The expiry in late 2007 of the agreement with major banks related to the implementation of the internal ratings-based approach of the New Basel Capital Accord was a further contributing factor to the increase in 2008-2009. In 2009-2010, the growth in expenses was largely due to: growth in supervisory staff and the hiring of employees with current industry experience in credit, market and operational risks in order to focus more effort on higher risk institutions and products; the early detection of problem loan portfolios; and, meeting the increasing number, frequency and intensity of international commitments. In 2010-2011 and 2011-2012, increased assessments were driven by growth in our complement of specialized skills in research, credit risk and capital to enhance OSFI’s ability to guide and supervise federally regulated financial institutions in managing risks. In 2012-2013, this number has stabilized.

The increase in assessments on the property and casualty (P&C) insurance industry over the past five years reflects the increase in OSFI’s resources during 2007-2008 and 2008-2009 to address OSFI’s heightened efforts on actuarial and capital adequacy matters, and the addition of resources to strengthen OSFI’s actuarial expertise in this industry. The increase in 2009-2010 reflects OSFI’s greater focus on this sector due to weakening industry and market conditions, identification of emerging risks, focus on the IFRS implications for this industry, and its efforts on the Minimum Capital Test (MCT). The increase in 2010-2011 through 2012-2013 reflects OSFI’s continued efforts to enhance its specialization in the P&C industry, support more sophisticated risk-sensitive capital rules and to fulfill international commitments.

The decrease in assessments on the life insurance industry during 2008-2009 reflects OSFI’s reallocation of resources to higher risk institutions and products within the DTI and P&C industries. The 2009-2010 increase can be attributed to the industry share of incremental OSFI resources to address economic and market conditions and emerging risks. The increase in 2010-2011 through 2012-2013 reflects the addition of staff with specific expertise in life insurance, OSFI’s efforts on developing a new framework for the standardized Minimum Continuing Capital and Surplus Requirements (MCCSR) approach, and its continuing focus on reviewing and revising the framework used to determine the capital requirements for segregated fund guarantee products.

In addition to these industry-specific cost drivers, there were other generic factors that caused increases in base assessments on all industries: OSFI’s development and implementation of an IM/IT strategy and renewal program in 2010-2011 through 2012-2013 contributed to overall growth in expenditures and assessments. In 2008-2009 and continuing through 2009-2010, prevailing economic and market conditions resulted in a significant increase in the number of staged institutions across all industries, and hence an increase in surcharge assessments. In 2010-2011 and 2011-2012 the number of staged institutions and surcharge assessments decreased slightly, although the number remains high as compared to levels prior to 2008-2009. In 2012-2013, there was a further decrease in the number of staged institutions; however, surcharge assessments increased slightly as a result of changes to the mix of staged institutions.

Federally Regulated Private Pension Plans

Program Changes

In 2011-2012, OSFI changed its pension plan assessment methodology to include retirees and survivors in the assessment base of all plans for plan filings after March 31, 2012. Previously the assessment base of assessable members included only active members of the plans. With the inclusion of all beneficiaries, the assessment base for most plans has increased. As a result, the assessment rate was reduced from $22 per assessable member in 2011-2012 to $10 per assessable beneficiary in the current year.

Assessments

OSFI’s costs for regulating and supervising private pension plans are recovered from an annual assessment charged to plans, based on the number of plan beneficiaries. Plans are assessed a fee upon applying for registration under the Pension Benefits Standards Act, 1985 (PBSA) and annually on the due date of their annual information return.

The assessment rate is established based on OSFI’s estimate of current year costs to supervise these plans, adjusted for any excess or shortfall of assessments in the preceding years. The estimate is then divided by the anticipated assessable membership to arrive at a per beneficiary assessment. The rate established for 2012-2013 was $10.00 per assessable beneficiary, down from $22.00 the previous year as a result of the change in assessment methodology discussed above. Total fees assessed during the fiscal year were $6.5 million, down from $7.9 million in 2011-2012.

The excess or shortfall of assessments in any particular year is amortized over five years in accordance with the assessment formula set out in regulations. Prior to 2003-2004, accumulated surpluses had kept assessment rates down; in 2003-2004 and 2004-2005, however, OSFI incurred unplanned expenses related to problem pension plans that depleted the surplus position. Subsequent assessment rates were set to recover the accumulated shortfall and the annual cost of administering the PBSA. The rate established and published in the Canada Gazette for 2013-2014 is set at $10.00 per assessable beneficiary. This rate reflects the new regulations discussed above.

Expenses

The cost of administering the PBSA for 2012-2013 was $6.9 million, an increase of $0.2 million or 3.0% from the previous year. The increase occurred as a result of planned growth in employee compensation.

Fees Assessed and Expenses for Fiscal Years
2007-2008 to 2012-2013

($000, except Basic Fee Rate)

FY 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
Fees Assessed 7,703 7,927 8,578 7,866 7,949 6,477
Expenses 5,876 5,931 6,529 6,555 6,701 6,905
Basic Fee Rate*
per assessable member
24.00 24.00 24.00 22.00 22.00 10.00

* The minimum and maximum annual assessment per plan is derived by multiplying the annual assessment by 50 and 20,000 respectively. With an annual assessment of $10.00 per member, the minimum annual assessment is $500 and the maximum is $200,000.



Actuarial Valuation and Advisory Services

The OCA is funded by fees charged for actuarial valuation and advisory services and by an annual parliamentary appropriation. Total expenses were $6.9 million, an increase of $0.3 million or 4.4% from the previous year due to the full year impact of filling previously approved positions, and normal economic and merit increases.