Section I: Organizational Expenditure Overview

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Organizational Profile

Minister: James M. Flaherty

Superintendent: Julie Dickson

Ministerial portfolio: Finance

Year established: 1987

Main legislative authorities: Office of the Superintendent of Financial Institutions Act (OSFI Act)

Organizational Context

Raison d’être

OSFI was established in 1987 by an Act of Parliament: the Office of the Superintendent of Financial Institutions Act (OSFI Act). It is an independent agency of the Government of Canada and reports to Parliament through the Minister of Finance.

OSFI supervises and regulates all banks in Canada and all federally incorporated or registered trust and loan companies, insurance companies, cooperative credit associations, fraternal benefit societies and private pension plans. OSFI’s mandate does not include consumer-related issues or the securities industry.

The Office of the Chief Actuary, which is an independent unit within OSFI, provides actuarial valuation and advisory services for the Canada Pension Plan, the Old Age Security program, the Canada Student Loans and Employment Insurance Programs and other public sector pension and benefit plans.

Responsibilities

The Office of the Superintendent of Financial Institutions (OSFI) was created to contribute to public confidence in the Canadian financial system.

Under our legislation, our mandate is to

  • Supervise federally regulated financial institutions (FRFI) and pension plans to determine whether they are in sound financial condition and meeting minimum plan funding requirements respectively, and are complying with their governing law and supervisory requirements;
  • Promptly advise institutions and plans in the event there are material deficiencies and take or require management, boards or plan administrators to take necessary corrective measures expeditiously;
  • Advance and administer a regulatory framework that promotes the adoption of policies and procedures designed to control and manage risk;
  • Monitor and evaluate system-wide or sectoral issues that may impact institutions negatively.

OSFI’s legislation has due regard to the need to allow institutions to compete effectively and take reasonable risks. Our legislation also recognizes that management, boards of directors and plan administrators are ultimately responsible and that financial institutions and pension plans can fail.

The Office of the Chief Actuary, which is part of OSFI, provides actuarial services to the Government of Canada.

Strategic Outcomes and Program Alignment Architecture (PAA)

  • 1 Strategic Outcome One: A safe and sound Canadian financial system
    • 1.1 Program: Regulation and Supervision of Federally Regulated Financial Institutions
      • 1.1.1 Sub-Program: Risk Assessment and Intervention
      • 1.1.2 Sub-Program: Regulation and Guidance
      • 1.1.3 Sub-Program: Approvals and Precedents
    • 1.2 Program: Regulation and Supervision of Federally Regulated Private Pension Plans
  • 2 Strategic Outcome Two: A financially sound and sustainable Canadian public retirement income system
    • 2.1 Program: Actuarial Valuation and Advisory Services
      • 2.1.1 Sub-Program: Services to the Canada Pension Plan and Old Age Security Program
      • 2.1.2 Sub-Program: Services to Public Sector Pension and Insurance Programs
      • 2.1.3 Sub-Program: Services to the Canada Student Loans and Employment Insurance Programs
  • Internal Services

Organizational Priorities

Priority Type Strategic Outcome(s)
Anticipating and Responding to Risks Emanating from the Economy and Financial System Ongoing Strategic Outcomes One and Two
Description

Why is this a priority?

Economic and financial conditions have a significant impact on the environment within which financial institutions operate. A clear understanding of the risks emanating from the economy and financial systems ensures that effective regulatory and supervisory actions are undertaken.

Plans for meeting the priority

  • Focus on the impact of interest rate conditions on the risk profile of institutions via stress testing; continued monitoring of high household indebtedness and real estate lending.
  • Respond to recommendations stemming from the International Monetary Fund’s Financial Sector Assessment for Canada. As well, participate in and achieve strong results from ongoing peer reviews by the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS), such as the BCBS’ 2014 review of Basel III implementation in Canada.
  • Continue to focus on operational risk, including growing cyber security risk data aggregation and outsourcing risks.

 

Priority Type Strategic Outcome(s)
Enhancing Supervisory Processes Ongoing Strategic Outcome One
Description

Why is this a priority?

Increasing the effectiveness of supervision is a key pillar of the FSB's efforts to reduce risk in the financial system. In order to remain effective as a supervisor, OSFI must continue to evolve and enhance its supervisory practices in response to changes in the economy and the financial system as well as to meet rising international standards.

Plans for meeting the priority

  • Review OSFI intervention processes at FRFIs to ensure a more timely response to OSFI’s expectations.
  • For large complex FRFIs in particular, focus on new supervisory areas such as assessing risk culture, and implementation of risk appetite.
  • Establish a process to continually review expectations for small institutions, particularly small and mid-sized banks that would consider the impact of guidelines, methodology and supervisory activities and ensure that these are appropriately scaled to size and complexity.
  • Review risk management practices in FRFIs in the area of internal audit and succession planning.

 

Priority Type Strategic Outcome(s)
Anticipating and Responding to Risks Emanating from Regulatory Reform Ongoing Strategic Outcome One
Description

Why is this a priority?

The global regulatory agenda is changing rapidly. A clear understanding of developments ensures that appropriate actions are undertaken by OSFI to maintain an effective Canadian regulatory framework that continues to be responsive to international reforms.

Plans for meeting the priority

Banking Reforms:

  • Monitor the implementation of banking reforms in other jurisdictions, especially the extent to which they exceed agreed minima, and consider appropriate responses for Canada.
  • Monitor bank responses to global regulatory reforms and adjust, as appropriate, supervisory or regulatory requirements.
  • Support Financial Institutions Supervisory Committee (FISC) partner agencies in establishing a sound resolution framework for major banks in Canada.

Insurance Reforms:

  • Implement the suite of domestic reforms set out in the Life Insurance Regulatory Framework publication, as well as proposed changes to property and casualty insurance capital requirements.
  • Actively participate in the development of global insurance capital standards. In addition, monitor the implementation of prudential insurance reforms in other jurisdictions and consider appropriate Canadian responses.
  • Develop a separate capital guideline and update the methodology for determining additional capital requirements for private sector mortgage insurance companies.

Pension Reforms:

  • Support the implementation of Pooled Registered Pension Plans (PRPP)

Accounting, Auditing and Information Disclosure Reforms:

  • Actively support the International Accounting Standards Board in achieving convergence with the Financial Accounting Standards Board. In the event of lack of convergence, assess and recommend any actions that need to be taken with respect to OSFI prudential standards.
  • Ensure that major FRFIs continue to be among the leaders in publicly disclosing information on their financial condition and risk management practices.

 

Priority Type Strategic Outcome(s)
A High-Performing and Effective Workforce Ongoing Strategic Outcomes One and Two
Description

Why is this a priority?

Focusing on the learning and development of OSFI employees and enhancing their ability to plan for and adapt to change, will allow for continuing to successfully meet OSFI business goals.

Plans for meeting the priority

  • Deliver internal services, including change management support, to effectively respond to business needs in a timely way while ensuring compliance with OSFI’s values and Government of Canada expectations.
  • Continue to promote the best use of resources, including enhancing OSFI’s integrated planning process and supporting documentation, so that resource gaps (skills, tools & financial) and action plans to mitigate risks can be identified more readily.
  • Continue to actively develop OSFI employees by ensuring that both individual and group learning needs are identified and delivered in a timely and effective way.

 

Priority Type Strategic Outcome(s)
An Enhanced Corporate Infrastructure Ongoing Strategic Outcomes One and Two
Description

Why is this a priority?

Continuous strengthening of internal systems, processes, and controls will enable OSFI to work more effectively and efficiently.

Plans for meeting the priority

  • Complete the current Information Technology Renewal (ITR) program and prepare OSFI to be able to adopt future emerging technologies in support of planned business needs.
  • Continue to develop enterprise-wide information and FRFI data management strategies and frameworks to facilitate informed decision making and efficiently manage OSFI’s corporate records.
  • Continue to strengthen OSFI’s framework of internal controls, including reviewing and improving key internal processes, through a risk-based approach.
  • Define the workplace of the future (physical space, systems, etc.) and develop a plan for achieving it as we enter into new office leases.

 

Risk Analysis

Key Risks
Risk Risk Response Strategy Link to Program Alignment Architecture

Economic, Industry and Regulatory Environment: risk pertaining to the ability of FRFIs and pension plans to cope with the slow economic growth accompanied by exceptionally low interest rates and rising household indebtedness.

The risk also links to:

  • strategies and business models adopted by FRFIs and pension plans to yield benefits in such an environment; and
  • OSFI’s ability to foster resilience by positively influencing regulatory changes in the financial sector and through the design and application of its supervisory framework.

The risk was first identified in the 2012-13 Report on Plans and Priorities (RPP).

In addition to continuing to monitor FRFIs and private pension plans, collaborating with various domestic partners to discuss and coordinate approaches to oversight of the financial sector, and participating in international forums to develop and implement best practices, risk response strategies to be specifically implemented in 2014-15 include:

  • Enhancing collaboration with various domestic partners to discuss and coordinate approaches to advance analysis of macroeconomic and systemic risk issues.
  • Finalization of guidance for mortgage insurance.

Measures that will be used to gauge the effectiveness of the above risk responses implemented in 2014-2015 include:

  • Introduce a new guideline for mortgage insurance companies.

Program 1.1: Regulation and Supervision of Federally Regulated Financial Institutions

Program 1.2: Regulation and Supervision of Federally Regulated Private Pension Plans

Capital Adequacy, Leverage and Liquidity: risk stemming from the redesign of the Basel capital framework for banks and from the need to update prudential regulatory frameworks to address past disruptions in global financial markets. The risk encompasses the downstream effects – intended and unintended – of the changes made.

The risk was first identified in the 2012-13 RPP.

In addition to implementing Basel III reforms and monitoring the implementation of banking reforms in other jurisdictions, while at the same time giving consideration to appropriate responses for Canada, OSFI will focus on:

  • Advancing work on a framework for liquidity and leverage requirements.
  • Advancing work in developing more risk-sensitive capital frameworks for insurance companies.
  • Furthering the development of revised parental stand-alone capital requirements for banks and insurance companies.

Measures that will be used to gauge the effectiveness of the above risk responses implemented in 2014-15 include:

  • Finalization of a guideline on liquidity adequacy requirements.
  • Completion of quantitative impact studies in collaboration with life insurance companies to better assess the impact of proposed changes to life insurance capital requirements.
  • Implementation of a more risk sensitive standardized approach to the minimum capital test for property and casualty insurers.

Program 1.1: Regulation and Supervision of Federally Regulated Financial Institutions

Changes to Accounting and Auditing Standards: changes in standards will affect accounting, loan values and provisions, actuarial standards, and the regulatory capital regime.

The risk relates to OSFI’s ability to perform accurate risk assessments of financial institutions and to adjust the regulatory capital framework.

The risk was first identified in the 2012-13 RPP.

Risk responses reported in 2012-13 and ongoing include the following.

In addition to monitoring and participating in domestic and international work efforts to identify and ensure that any issues that arise are addressed in FRFI prudential and disclosure requirements, OSFI will ensure that:

  • Changes are embedded into regulatory and supervisory processes.
  • Disclosures emanating from international bodies are treated domestically in a cohesive manner through the implementation of accounting disclosure guidance.

Measures that will be used to gauge the effectiveness of the above risk responses implemented in 2014-15 include:

  • Timely changes to disclosure reporting requirements.
  • New guidance or amendments to existing guidance is clear and relevant to industry stakeholders.

Program 1.1: Regulation and Supervision of Federally Regulated Financial Institutions

The environment within which OSFI operates presents an array of challenges to the achievement of its mandate and objectives. While many of these challenges are consistently present, the extent to which they pose a risk to OSFI’s objectives varies, depending on economic and financial conditions and the financial industry environment. OSFI’s ability to achieve its mandate depends on the timeliness and effectiveness with which it identifies, evaluates, prioritizes, and develops initiatives to address areas where its exposure is greatest.

In 2012-13, OSFI identified three externally-driven risks that were of concern and put forward strategies to address them. These risks and their accompanying responses are still relevant today as mitigation actions continue to unfold. Close scrutiny is placed on these external risks in light of the rapid changes in the industry coupled with the low interest rate environment and changing international and domestic regulatory requirements.

As a byproduct of OSFI’s responses to external risks stemming from the financial crisis and from continuing uncertain economic and financial conditions, the organization grew in size and underwent a number of changes, including the expansion of its supervisory mandate to include the Canada Mortgage and Housing Corporation (CMHC). While such growth and changes were necessary, they led to the identification of two risks in 2013-14:

  • Organizational structure, cohesiveness and accountability (i.e. the risk to OSFI if various groups of employees within OSFI do not operate cohesively); and
  • Change management (i.e. the risk to OSFI arising from how operational changes are managed).

To address these risks, OSFI will continue to dedicate resources to improving its operations. Heightened attention will be placed on management of change, particularly to the maturing of organizational change management processes and thorough information management practices and governance. OSFI will also dedicate efforts to strengthening decision making processes associated with regulatory and supervisory interventions. OSFI will continue to ensure that it is appropriately organized to support the growth and changes that took place in recent years.

While the focus of this section is on external risks (see the Key Risks table), the two key internal risks coming out of the Corporate Risk Profile are highlighted given the important role their mitigation plays in responding to changes in the business environment.

Planned Expenditures

Budgetary Financial Resources (Planned Spending — dollars)
2014-15
Main Estimates
2014-15
Planned Spending
2015-16
Planned Spending
2016-17
Planned Spending
142,763,529 142,763,529 163,302,148 164,621,566

The financial resources table above provides a summary of the total planned spending for OSFI for the next three fiscal years.

 

Human Resources (Full-Time Equivalents—FTEs)
2014-15 2015-16 2016-17
669 662 662

The human resources table above provides a summary of the total planned full-time equivalent resources for OSFI for the next three fiscal years.

 

Budgetary Planning Summary for Strategic Outcomes and Program(s) (dollars)
Strategic Outcomes, Programs and Internal Services 2011-12 Expenditures 2012-13 Expenditures 2013-14 Forecast Spending 2014-15 Main Estimates 2014-15 Planned Spending 2015-16 Planned Spending 2016-17 Planned Spending
Strategic Outcome 1: A safe and sound Canadian financial system.
1.1 Regulation and Supervision of Federally Regulated Financial Institutions 62,789,318 67,148,283 75,355,803 77,788,097 77,788,097 79,909,307 82,886,559
1.2 Regulation and Supervision of Federally Regulated Private Pension Plans 5,529,297 4,719,130 4,577,571 4,420,260 4,420,260 4,601,001 4,772,664
Strategic Outcome 1 Subtotal 68,318,615 71,867,413 79,933,374 82,208,357 82,208,357 84,510,308 87,659,223
Strategic Outcome 2: A financially sound and sustainable Canadian public retirement income system.
2.1 Actuarial Valuation and Advisory Services 4,179,762 4,475,526 5,163,724 5,231,775 5,231,775 5,423,820 5,631,855
Strategic Outcome 2 Subtotal 4,179,762 4,475,526 5,163,724 5,231,775 5,231,775 5,423,820 5,631,855
Internal Services Subtotal 52,324,681 52,296,952 67,433,168 55,323,397 55,323,397 73,368,020 71,330,488
Total 124,823,058 128,639,891 152,530,266 142,763,529 142,763,529 163,302,148 164,621,566

Actual spending increased 3.1% from 2011-12 to 2012-13, mostly within the Regulation and Supervision of Federally Regulated Financial Institutions program. During this period, OSFI’s mandate expanded to include the oversight of Canada Mortgage and Housing Corporation’s (CMHC) commercial activities. Spending within the Regulation and Supervision of Federally Regulated Private Pension Plans program returned to normal levels in 2012-13 with the completion of the development and implementation of a new system to enhance pension plan supervision.

Outside of the fluctuations within Internal Services outlined below, increases in 2013-14 and beyond are attributed to the full year impact of new resources added in 2012-13 and to annual merit and inflationary increases per the collective agreements.

Spending in the Internal Services program is expected to increase 28.9% in 2013-14 due to costs associated with the implementation of OSFI’s Information Technology Renewal (ITR) program, an increase in FTEs to support regulatory and supervisory initiatives, higher facilities costs associated with incremental space to accommodate the larger staff complement in Toronto and Ottawa, and the settlement of a pay equity claim dating from 1987 to 1997 that was previously provisioned for but paid out in 2013-14. The reduced level of spending in 2014-15 reflects the completion of the implementation of OSFI’s five-year IM/IT Strategy and the return to normal levels of investments in IM/IT to upgrade systems and renew core infrastructure and applications. Costs are expected to rise again in 2015-16 as OSFI’s Toronto office lease expires in February 2016.

 

Alignment to Government of Canada Outcomes

2014-15 Planned Spending by Whole-of-Government-Framework Spending Area (dollars)
Strategic Outcome Program Spending Area Government of Canada Outcome 2014-15 Planned Spending
1. A safe and sound Canadian financial system. 1.1 Regulation and Supervision of Federally Regulated Financial Institutions Economic Affairs Strong economic growth 77,788,097
1.2 Regulation and Supervision of Federally Regulated Private Pension Plans Economic Affairs Income security and employment for Canadians 4,420,260
2. A financially sound and sustainable Canadian public retirement income system. 2.1 Actuarial Valuation and Advisory Services Economic Affairs Income security and employment for Canadians 5,231,775

 

Total Planned Spending by Spending Area (dollars)
Spending Area Total Planned Spending
Economic Affairs 87,440,132
Social Affairs 0
International Affairs 0
Government Affairs 0

 

Agency Spending Trend

Agency Spending Trend Graph

Agency Spending Trend Graph

View this chart as a table

 

In accordance with the Treasury Board Secretariat’s Guide to the Preparation of Part III of the 2014-2015 Estimates, the financial and human resources presented in this Report on Plans and Priorities reflect OSFI’s approved Annual Reference Level Update (ARLU) estimates, which were prepared in fall 2013. At the time of writing this Report on Plans and Priorities (RPP), OSFI was completing its business planning process for fiscal years 2014-15 to 2017-18 and assessing its capacity requirements. Any changes to OSFI’s approved ARLU estimates as a result will be reflected in next year’s RPP.

The 2012-13 fiscal year saw growth of 3.1%, primarily driven by an increase in personnel costs, which typically account for approximately 75% of OSFI’s spending. Effective July 2012, OSFI’s mandate expanded to include the review and assessment of the safety and soundness of CMHC’s commercial activities, largely their mortgage insurance and securitization programs, resulting in a required increase in resources.

OSFI’s 2013-14 expenditures are forecasted to increase by an additional 18.6%, to $152,530,266 primarily due to the curtailment of severance for unionized employees, the full-year impact of employees hired during 2012-13, normal inflation and merit adjustments, investments in OSFI’s Information Technology Renewal (ITR) program, and the settlement of a pay equity claim dating from 1987 to 1997 that was previously provisioned for but paid out in 2013-14.

As OSFI’s 5-year ITR program is expected to be completed in 2014-15, expenditures are expected to decrease 6.4% over 2013-14, but will increase 14.4% in 2015-16 as leasehold improvements will be required with the relocation of OSFI's Toronto office when the lease expires in 2016. During the planning years, OSFI’s staff complement is expected to remain relatively stable and will continue to place a priority on responding to risks emanating from the economy, with a focus on the impact of low interest rates, rising household indebtedness and ongoing challenges in major foreign economies on FRFIs, pension plans and CMHC.

Estimates by Vote

For information on OSFI’s organizational appropriations, please see the 2014-15 Main Estimates publication.

Contribution to the Federal Sustainable Development Strategy (FSDS)

OSFI also ensures that its decision-making process includes a consideration of the FSDS goals and targets through the strategic environmental assessment (SEA). An SEA for policy, plan or program proposals includes an analysis of the impacts of the proposal on the environment, including on the FSDS goals and targets. The results of SEAs are made public when an initiative is announced or approved, demonstrating that environmental factors were integrated into the decision-making process.

 

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