Financial

Document Properties

  • Date : September 2015

ASSESSMENT CRITERIA

(The Assessment Criteria should be read in conjunction with OSFI's Supervisory Framework)

ROLE OF FINANCIAL

Financial is an independent function responsible for ensuring the timely and accurate reporting and in-depth analysis of the operational results of the operating units (including business lines) of a Federally Regulated Financial Institution (FRFI) in order to support planning, strategy, performance measurement and decision-making by Senior Management and the Board.

Its respon­sibilities include:

  • providing financial analysis of the FRFI's and operating unit performance and the major business cases to Senior Management and the Board, highlighting matters requiring their attention; and
  • ensuring an effective internal financial reporting and management information system.
QUALITY OF FINANCIAL OVERSIGHT
The following statements describe the four overall rating categories for the assessment of the Financial function.
An overall rating of the Financial function considers both its characteristics and the effectiveness of its performance in executing its mandate, in the context of the nature, size, complexity, and risk profile of the FRFI. Characteristics and examples of performance indicators that guide supervisory judgement in determining an appropriate overall rating are set out below.
Strong
The characteristics of the Financial function meet or exceed our supervisory expectations of what is considered necessary, given the nature, size, complexity, and risk profile of the FRFI. Financial consistently demonstrates highly effective performance.
Acceptable
The characteristics of the Financial function meet our supervisory expectations of what is considered necessary, given the nature, size, complexity, and risk profile of the FRFI, or there may be some minor areas that require improvement. Financial performance is effective.
Needs Improvement
The characteristics of the Financial function mainly meet our supervisory expectations of what is considered necessary, given the nature, size, complexity and risk profile of the FRFI, but there are some significant areas that require improvement. Financial performance is mainly effective, but there are some significant areas where effectiveness needs to be improved. These areas could cause the FRFI to not address prudential concerns if not improved in a timely manner.
Weak
The characteristics of the Financial function are not, in a material way, what is considered necessary, given the nature, size, complexity, and risk profile of the FRFI. Financial performance has demonstrated serious instances where effectiveness is weak and requires immediate action.
FINANCIAL CHARACTERISTICSFootnote *
The following criteria describe the characteristics to be used in assessing the quality of the Financial function's independent analysis and reporting of the FRFI's financial and operating results to Senior Management and the Board. The application and weighting of the individual criteria will depend on the nature, size, complexity, and risk profile of the FRFI and will be assessed collectively, together with the effectiveness of the Financial function's performance, in rating its overall quality.
Essential Elements Criteria
1. Mandate

1.1 Extent to which the function's mandate establishes:

    1. Clear objectives and enterprise-wide authority for its activities;
    2. Authority to oversee effectiveness and consistency of operating units' financial practices;
    3. Authority to carry out its responsibilities independently of the operating units;
    4. Right of access to the FRFI's records, information and personnel;
    5. A requirement to provide analysis and recommendations on the FRFI's strategic and business opportunities/changes, risk appetite, as well as on financial management information system and business process changes needed to enhance decision-making; and
    6. Authority to follow up on action taken by management in response to identified issues and related recommendations.

1.2 Extent to which the mandate is communicated within the FRFI.

2. Organization Structure 2.1 Appropriateness of the stature and authority of the function head within the organization to enable the function to be effective in fulfilling its mandate.
2.2 Extent to which the function head has direct access to Senior Management and the Board (or a Board Committee).
2.3 Appropriateness of the function's organization structure based on the nature, size, complexity, and risk profile of the FRFI.
2.4 Extent to which the function is independent of the operating units of the FRFI.
3. Resources

3.1 Adequacy of the function's processes to determine the required:

    1. Level of resources (e.g. people, tools, data) necessary to carry out responsibilities currently and in response to changes in the FRFI's business activities and strategies, as well as its operating environment;
    2. Qualifications and competencies of staff; and
    3. Continuing professional development programs to enhance staff competencies.
3.2 Adequacy of the function's resources and appropriateness of its collective qualifications and competencies for executing its mandate.
4. Policies, Practices and Methodologies 4.1 Adequacy of the function's policies, practices and methodologies for collecting, analyzing and providing operating and financial information (including regulatory, tax, etc.).
4.2 Adequacy of the function's policies, practices and methodologies for measuring performance against objectives (e.g., using appropriate key performance indicators) and identifying adverse trends.
4.3 Extent to which stated relevant policies, practices and methodologies are co-ordinated with strategic, capital, and liquidity management policies and practices and the Risk Appetite Framework.
4.4 Extent to which stated relevant policies, practices and methodologies are documented, communicated, and appropriately followed by the FRFI's operating units.
4.5 Extent to which analysis uses understandable formats, commentary and appropriate key performance indicators (i.e. derived from the key business drivers contained in the strategic and/or business plans, quantifiable, and both financial and non-financial in nature), as well as is structured to be timely, accurate and able to identify significant issues.
4.6 Adequacy of the function's capacity for preparing ad hoc analysis for Senior Management and the Board on a timely basis.
4.7 Adequacy of the function's policies to review its practices, methodologies, reports and key performance indicators regularly to ensure that they continue to meet the needs of the FRFI.
4.8 Adequacy of the function's policies, practices and methodologies to ensure an effective financial management information system to enable management to identify significant performance issues in a timely manner.
5. Reporting 5.1 Adequacy (nature, level and timeliness) of required reporting, including identified issues along with recommendations, to Senior Management, the Board and operating units, as appropriate.
5.2 Adequacy of required monitoring, reporting and follow up on the resolution of the function-identified issues.
5.3 Adequacy of required reporting to Senior Management and the Board (or a Board committee) on the effectiveness of the financial processes.
6. Internal Audit Oversight 6.1 Extent to which Internal Audit's program includes reviews of the Financial function and its key controls, it has appropriate resources to carry out the reviews, and the scope and frequency of its reviews are sufficient to assess the effectiveness of the Financial function.
6.2 Adequacy of Internal Audit's communication of its recommendations and follow-up with respect to the Financial function.
7. Senior Management and Board Oversight

7.1 Extent to which Senior Management and the Board (or a Board Committee) approval is required for:

    1. The appointment, performance review, compensation and/or removal/succession of the function head;
    2. The function's mandate, resources and budgets; and
    3. Short-term and long-term enterprise-wide business objectives, strategy and plans with respect to the Financial function.
7.2 Adequacy of policies and practices to engage periodic, independent reviews of the function, including communicating the results to Senior Management and the Board (or a Board Committee).
7.3 Adequacy of talent development and succession planning for Financial function key roles.
8. Relationships with Other Oversight Functions 8.1 Adequacy of the formal integration of the Financial function's role and defined responsibility with other oversight functions as appropriate.
FINANCIAL PERFORMANCE
The quality of the Financial function's performance is demonstrated by its effectiveness in providing:
  • oversight of operating unit analysis and reporting of the FRFI's financial and operating results, and
  • independent analysis and reporting to Senior Management and the Board.

The assessment will consider the effectiveness with which the Financial function ensures timely, accurate and insightful information, including comprehensive analysis that supports effective planning, strategy and decision-making to Senior Management and the Board. OSFI will look to indicators of effective performance to guide its judgement in the course of its supervisory activities. Supervisory work may include: discussions with directors and management, including line management and the Chief Financial Officer; reviews of internal audit reports and discussions with internal auditors, Chief Risk Officer, external auditors and appointed actuaries; review of the information provided to Senior Management and the Board; etc.

Examples of indicators that could be used to guide supervisory judgement include the extent to which the Financial function:

  1. Provides regular, comprehensive reports, independently of the business areas being reported upon, for Senior Management and the Board that
    • are accurate, thorough, timely, understandable and meaningful,
    • include an appropriate analysis of results against objectives using key performance indicators, and any adverse trends, and
    • highlight matters requiring Senior Management and Board attention;
  2. Proactively conducts insightful analysis and provides recommendations to Senior Management and the Board on strategic and/or business opportunities;
  3. Proactively obtains input from operating units on financial issues for potential broader institution impact;
  4. Proactively and effectively responds to identified issues and follows up to ensure that they are addressed on a timely basis;
  5. Actively engages (in collaboration with Senior Management and others) in the development of, and contribution to, an appropriate Risk Appetite Framework consistent with the FRFI's short- and long-term strategic, financial and capital plans;
  6. Proactively adheres to the approved Risk Appetite Framework process, where appropriate, and escalates breaches in a timely manner;
  7. Actively engages the Board in discussion on business and financial performance relative to the Board-approved strategy and risk appetite;
  8. Responds quickly and appropriately to requests for ad hoc reports;
  9. Actively engages Senior Management and the Board in discussion to confirm that its reports and presentations continue to meet their needs;
  10. Proactively assesses, on a regular basis, the adequacy of financial management information systems to enable management to identify significant performance issues in a timely manner;
  11. Carries out its policies, practices and methodologies effectively to ensure that they are:
    • coordinated with strategic, capital and liquidity management policies, and
    • integrated with day-to-day business activities of operating units.
  12. Proactively updates its policies, practices and methodologies in response to changes in the industry and in the FRFI's strategy, business activities and risk appetite;
  13. Responds to Internal Audit findings in a complete and timely manner;
  14. Is assessed by Internal Audit as being effective;
  15. Is recognized by Senior Management and the Board as contributing to their understanding of the operations of the FRFI, including providing resources as necessary, acting on recommendations, etc.
  16. Is recognized by operating units as helpful in providing effective oversight and advice.

Footnotes

Footnote *

Examples of documentation that OSFI may review in formulating its assessment of the characteristics of the Financial function include: mandates, policies and procedure manuals; resource plans; job descriptions and personnel profiles; reports and presentations prepared for Senior Management and the Board or any of its committees; meeting minutes and information packages; and financial management information systems.

Return to footnote * referrer