Government of Canada
Symbol of the Government of Canada

Financial Review
and Highlights

Photo: Sabina Faust, Manager, Procurement and Contracting, Procurement, Contracting and Asset Management, Corporate Services Sector; James Kealey, Manager, Financial Policy and Projects, Finance, Corporate Services Sector
Staff image Sabina Faust
Manager, Procurement and Contracting
Procurement, Contracting and Asset Management
Corporate Services Sector
Staff image James Kealey
Manager, Financial Policy and Projects
Finance
Corporate Services Sector

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, 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 costs for the fiscal year 2014-2015.

OSFI’s total costs were $144.9 million, a $2.9 million, or 2.1%, increase from the previous year. Human resources costs, OSFI’s largest expense, rose by $0.3 million, or 0.3%. The increase in basic salaries was offset by less usage of contracted personnel services combined with a decrease in the prescribed employee benefit plan contribution rate. Information management/technology costs increased by $2.0 million, or 14.1%, largely driven by amortization expense related to new system implementations during the year and in the latter half of the preceding one. Facilities costs increased by $1.1M, or 11.6%, as a result of additional leased space to accommodate the growth in staff complement of recent years. All other costs decreased by $0.5M as a result of efforts to contain discretionary spending.

OSFI’s average number of full-time equivalent employees in 2014-2015 was 687, a 3.2% increase from the previous year as a result of the full year impact of employees added during 2013-2014. In the year under review, OSFI set a limit on head count and ended the year with an actual head count of 704, a 1.0% increase from its head count of 697 as at March 31, 2014.

Federally Regulated Financial Institutions

Revenues

Total revenues from federally regulated financial institutions were $130.8 million, an increase of $3.8 million, or 3.0%, 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 $3.3 million, or 2.8%, from the previous year.

Revenues from cost recovered services increased by $0.4 million, or 8.4%, from the previous year as a result of services provided to two additional federal Crown corporations.

Costs

Total costs were $130.8 million, an increase of $3.8 million, or 3.0%, from the previous year. The increase is primarily due to two factors: facilities costs increased by $1.1M and information management/technology costs increased of $2.1 million, for the reasons mentioned above.

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 cumulative growth of base assessments by industry group over the past five years, using 2009-2010 as the base year.

Base Assessments By Industry
Cumulative Growth Rates from Fiscal Year 2010

Base Assessments By Industry: Cumulative Growth Rates from Fiscal Year 2010

[Text Version]

The increase in base assessments on the deposit-taking institutions (DTI) industry during 2010-2011 and 2011-2012 was 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. While base assessments stabilized in 2012-2013, they increased in 2013-2014 as a result of work related to domestic systemically important banks (D-SIBs). The rate of growth in base assessments eased in 2014-2015, in line with that of OSFI’s total expenses.

The increase in assessments on the property and casualty (P&C) insurance industry in 2010-2011 through 2013-2014 reflects OSFI’s continued efforts to enhance its specialization in the P&C industry, support more sophisticated risk-sensitive capital rules and fulfill international commitments. During 2014-2015, OSFI finalized and issued its revised Minimum Capital Test (MCT) and continued development work on a framework for the use of company-specific models to determine capital requirements for P&C insurance companies and new capital rules for mortgage insurers.

The increase in assessments on the life insurance industry in 2010-2011 through 2013-2014 reflects the addition of staff with specific expertise in life insurance, OSFI’s efforts in 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 2014-2015, OSFI continued its efforts on the MCCSR guideline and continued to work on the development of a new Life Insurance Solvency Framework Standard Approach that is scheduled for implementation in 2018.

In addition to these industry-specific cost drivers, other generic factors caused increases in base assessments on all industries: OSFI’s development and implementation of an Information Management/Information Technology (IM/IT) strategy and renewal program from 2010-2011 to 2014-2015 contributed to overall growth in expenditures and assessments; and, slight decreases during 2010-2011 and 2011-2012 in the number of staged institutions across all industries, and hence in surcharge assessments. This in turn had the effect of increasing base assessments. 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. In both 2013-2014 and 2014-2015, surcharge assessments decreased slightly which, in turn, slightly increased base assessments.

Federally Regulated Private Pension Plans

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 base fee rate. The rate established for 2014-2015 was $10.00 per assessable beneficiary, unchanged from the previous year. Total fees assessed during the fiscal year were $6.7 million, down from $6.8 million in 2013-2014.

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 2009-2010, rates had been set to recover an accumulated shortfall and the annual costs of administering the PBSA. A small surplus position was re-established in 2008-2009 and was buoyed by lower than planned expenses in each of the two subsequent years. Since 2012-2013, rates have been set to draw the surplus down. The rate established and published in the Canada Gazette for 2015-2016 is set at $10.00 per assessable beneficiary, unchanged from 2014-2015.

Costs

The cost of administering the PBSA for 2014-2015 was $6.7 million, a decrease of $0.4 million, or 6.2%, from the previous year due to lower human resources costs as a result of vacancies within the division.

Fees Assessed and Costs for Fiscal Years
2009-2010 to 2014-2015

($000, except Basic Fee Rate)

FY 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015
Fees Assessed 8,578 7,866 7,949 6,477 6,842 6,725
Costs 6,529 6,555 6,701 6,905 7,196 6,666
Basic Fee Rate*
per assessable member
24.00 22.00 22.00 10.00 10.00 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 costs were $7.3 million, a decrease of $0.3 million or 4.2% from the previous year due to some vacancy savings and the completion of a triennial review of the Canada Pension Plan in 2013-2014.

Changes in Accounting Standards

Transition to Public Sector Accounting Standards (PSAS)

In December 2014, the Public Sector Accounting Board (PSAB) issued amendments to Public Sector Accounting Standards (PSAS). These amendments introduced the concept of a new public sector entity – referred to as a government component – and provided guidance on the basis of accounting to be used by such entities. OSFI is considered a government component and is required to adopt PSAS effective the 2017-2018 fiscal year.

OSFI has chosen to approach the conversion in five phases: (1) Diagnostic Assessment; (2) Design and Planning; (3) Assessment, Design and Development; (4) Implementation; and, (5) Post Implementation Review. OSFI began the diagnostic assessment phase during 2014-2015.

The design and planning phase will begin in summer 2015. This will include a transition plan and a timetable for assessing the impact of the change in accounting standards on systems, internal controls over financial reporting and business activities.

OSFI continues to monitor standards development as issued by PSAB. Such developments could affect the timing, nature or disclosure of the adoption of PSAS.

The transition to PSAS is a significant undertaking. As the design and planning phase has not yet begun, OSFI is unable to quantify the impact of PSAS on its financial statements. The following table outlines the elements of OSFI’s conversion to PSAS and presents an assessment of progress towards achieving these objectives. As the project progresses or further changes in regulation conditions occur, changes to the transition plan may be required.

OSFI PSAS Conversion Approach: Assessment as at March 31, 2015

Project Phase Milestone Status
Diagnostic Assessment    
• Identify differences in IFRS/PSAS accounting policies External advisor’s report presented to OSFI’s Executive and and Audit Committees To be completed in June 2015
Design and Planning    
• Launch project, establish project governance
• Develop training and communications plan
Project governance and policy choices are in place To be completed in 2015-2016
Assessment, Design and Development    
• Identify solutions to PSAS and evaluate
• Develop final solutions to PSAS
Solutions approved by OSFI’s Executive and Audit Committees To be completed in 2015-2016
Implementation    
• Rollout PSAS solutions
• Test and remediate
Financial systems and processes are able to capture and report PSAS information To be completed in 2016-2017
Post Implementation Review    
• Debrief management and assess implementation
• Ongoing PSAS update and related changes management
Ongoing process post implementation To be started in 2017-2018