2014-15 Report on Plans and Priorities

 

James M. Flaherty
Minister of Finance

2014-15 Estimates

PART III – Departmental Expenditure Plans: Reports on Plans and Priorities

Purpose

Reports on Plans and Priorities (RPP) are individual expenditure plans for each department and agency. These reports provide increased levels of detail over a three-year period on an organization's main priorities by strategic outcome, program and planned/expected results, including links to related resource requirements presented in the Main Estimates. In conjunction with the Main Estimates, Reports on Plans and Priorities serve to inform members of Parliament on planned expenditures of departments and agencies, and support Parliament's consideration of supply bills. The RPPs are typically tabled soon after the Main Estimates by the President of the Treasury Board.

Estimates Documents

The Estimates are comprised of three parts:

Part I - Government Expenditure Plan - provides an overview of the Government's requirements and changes in estimated expenditures from previous fiscal years.

Part II - Main Estimates - supports the appropriation acts with detailed information on the estimated spending and authorities being sought by each federal organization requesting appropriations.

In accordance with Standing Orders of the House of Commons, Parts I and II must be tabled on or before March 1.

Part III - Departmental Expenditure Plans - consists of two components:

  • Report on Plans and Priorities (RPP)
  • Departmental Performance Report (DPR)

DPRs are individual department and agency accounts of results achieved against planned performance expectations as set out in respective RPPs.

The DPRs for the most recently completed fiscal year are tabled in the fall by the President of the Treasury Board.

Supplementary Estimates support Appropriation Acts presented later in the fiscal year. Supplementary Estimates present information on spending requirements that were either not sufficiently developed in time for inclusion in the Main Estimates or have subsequently been refined to account for developments in particular programs and services. Supplementary Estimates also provide information on changes to expenditure forecasts of major statutory items as well as on such items as: transfers of funds between votes; debt deletion; loan guarantees; and new or increased grants.

For more information on the Estimates, please consult the Treasury Board Secretariat website.

Links to the Estimates

As shown above, RPPs make up part of the Part III of the Estimates documents. Whereas Part II emphasizes the financial aspect of the Estimates, Part III focuses on financial and non-financial performance information, both from a planning and priorities standpoint (RPP), and an achievements and results perspective (DPR).

The Management Resources and Results Structure (MRRS) establishes a structure for display of financial information in the Estimates and reporting to Parliament via RPPs and DPRs. When displaying planned spending, RPPs rely on the Estimates as a basic source of financial information.

Main Estimates expenditure figures are based on the Annual Reference Level Update which is prepared in the fall. In comparison, planned spending found in RPPs includes the Estimates as well as any other amounts that have been approved through a Treasury Board submission up to February 1st (See Definitions section). This readjusting of the financial figures allows for a more up-to-date portrait of planned spending by program.

Changes to the presentation of the Report on Plans and Priorities

Several changes have been made to the presentation of the RPP partially to respond to a number of requests – from the House of Commons Standing Committees on Public Accounts (PAC - Report 15), in 2010; and on Government and Operations Estimates (OGGO - Report 7), in 2012 – to provide more detailed financial and non-financial performance information about programs within RPPs and DPRs, thus improving the ease of their study to support appropriations approval.

  • In Section II, financial, human resources and performance information is now presented at the Program and Sub-program levels for more granularity.
  • The report’s general format and terminology have been reviewed for clarity and consistency purposes.
  • Other efforts aimed at making the report more intuitive and focused on Estimates information were made to strengthen alignment with the Main Estimates.

How to read this document

RPPs are divided into four sections:

Section I: Organizational Expenditure Overview

This Organizational Expenditure Overview allows the reader to get a general glance at the organization. It provides a description of the organization’s purpose, as well as basic financial and human resources information. This section opens with the new Organizational Profile, which displays general information about the department, including the names of the minister and the deputy head, the ministerial portfolio, the year the department was established, and the main legislative authorities. This subsection is followed by a new subsection entitled Organizational Context, which includes the Raison d’être, the Responsibilities, the Strategic Outcomes and Program Alignment Architecture, the Organizational Priorities and the Risk Analysis. This section ends with the Planned Expenditures, the Alignment to Government of Canada Outcomes, the Estimates by Votes and the Contribution to the Federal Sustainable Development Strategy. It should be noted that this section does not display any non-financial performance information related to programs (please see Section II).

Section II: Analysis of Program(s) by Strategic Outcome(s)

This Section provides detailed financial and non-financial performance information for strategic outcomes, Programs and sub-programs. This section allows the reader to learn more about programs by reading their respective description and narrative entitled “Planning Highlights”. This narrative speaks to key services or initiatives which support the plans and priorities presented in Section I; it also describes how performance information supports the department’s strategic outcome or parent program.

Section III: Supplementary Information

This section provides supporting information related to departmental plans and priorities. In this section, the reader will find future-oriented statement of operations and a link to supplementary information tables regarding transfer payments, as well as information related to the greening government operations, internal audits and evaluations, horizontal initiatives, user fees, major crown and transformational projects, and up-front multi-year funding, where applicable to individual organizations. The reader will also find a link to the Tax Expenditures and Evaluations Report, produced annually by the Minister of Finance, which provides estimates and projections of the revenue impacts of federal tax measures designed to support the economic and social priorities of the Government of Canada.

Section IV: Organizational Contact Information

In this last section, the reader will have access to organizational contact information.

Definitions

Appropriation
Any authority of Parliament to pay money out of the Consolidated Revenue Fund.

Budgetary Vs. Non-budgetary Expenditures
Budgetary expenditures – operating and capital expenditures; transfer payments to other levels of government, organizations or individuals; and payments to crown corporations. Non-budgetary expenditures – net outlays and receipts related to loans, investments and advances, which change the composition of the financial assets of the Government of Canada.

Expected Result
An outcome that a program is designed to achieve.

Full-Time Equivalent (FTE)
A measure of the extent to which an employee represents a full person-year charge against a departmental budget. FTEs are calculated as a ratio of assigned hours of work to scheduled hours of work. Scheduled hours of work are set out in collective agreements.

Government of Canada Outcomes
A set of high-level objectives defined for the government as a whole.

Management Resources and Results Structure (MRRS)
A common approach and structure to the collection, management and reporting of financial and non-financial performance information.

An MRRS provides detailed information on all departmental programs (e.g.: program costs, program expected results and their associated targets, how they align to the government’s priorities and intended outcomes, etc.) and establishes the same structure for both internal decision making and external accountability.

Planned Spending
For the purpose of the RPP, planned spending refers to those amounts for which a Treasury Board (TB) submission approval has been received by no later than February 1, 2014. This cut-off date differs from the Main Estimates process. Therefore, planned spending may include amounts incremental to planned expenditure levels presented in the 2014-15 Main Estimates.

Program
A group of related resource inputs and activities that are managed to meet specific needs and to achieve intended results, and that are treated as a budgetary unit.

Program Alignment Architecture
A structured inventory of a department’s programs, where programs are arranged in a hierarchical manner to depict the logical relationship between each program and the Strategic Outcome(s) to which they contribute.

Spending Areas
Government of Canada categories of expenditures. There are four spending areas (social affairs, economic affairs, international affairs and government affairs) each comprised of three to five Government of Canada outcomes.

Strategic Outcome
A long-term and enduring benefit to Canadians that is linked to the department's mandate, vision, and core functions.

Sunset Program
A time-limited program that does not have on-going funding or policy authority. When the program is set to expire, a decision must be made as to whether to continue the program. (In the case of a renewal, the decision specifies the scope, funding level and duration).

Whole-of-Government Framework
A map of the financial and non-financial contributions of federal organizations receiving appropriations that aligns their Programs to a set of high level outcome areas defined for the government as a whole.

 


 

Table of Contents

 

Table of Contents

 

 


 

Message from the Superintendent

Julie Dickson, Superintendent, OSFI

This report highlights OSFI’s priorities for the 2014-2015 fiscal year. Anticipating and responding to risks emanating from the economy and the financial system is a key priority of OSFI, given our mandate. Thus we will continue to focus on the global economy, and the impact of interest rate conditions on the risk profile of financial institutions and pension plans, and closely monitor household debt levels and real estate lending in Canada. Also responding to external risks, we will focus on assessing institutions’ operational risks, including those related to cyber security and outsourcing.

We will continue to participate actively in ongoing peer reviews by the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS), as these are important barometers of how we are doing. As well, we will focus on any recommendations contained in the International Monetary Fund’s Financial Sector Assessment Program (FSAP) report, was published in 2014.

Another key priority is related to enhancing OSFI’s supervisory processes. For large complex federally regulated financial institutions in particular, we will focus on new areas, such as their risk culture. We will also continue to focus on early intervention.

We will monitor implementation of international regulatory reforms and consider appropriate actions for Canada. In the insurance sector, we will implement the reforms set out in the update to the Life Insurance Regulatory Framework and the proposed changes to property and casualty insurance capital requirements. In the pensions sector, we will support the licensing and registering of new Pooled Registered Pension Plans (PRPPs).

To continue fulfilling its mandate, OSFI will also look inward, to further strengthen its high performing and effective workforce, and make investments in corporate infrastructure, particularly in renewing IT systems.

Strong cooperation and communication with our federal partners, such as the Bank of Canada, the Department of Finance, Canada Deposit Insurance Corporation and the Financial Consumer Agency of Canada, will help us continue to achieve our mandate in 2014-15 and in the years to follow.

The contribution to public confidence OSFI has been able to make comes down - as always – to the individual contributions of our employees. Our people are the most important element of our effectiveness. When my term ends in June 2014, I know that my successor, and all Canadians, will be able to count on the ongoing dedication and professionalism of OSFI employees throughout 2014-2015 and beyond.

 


 

Section I: Organizational Expenditure Overview

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.

 

 


 

Section II: Analysis of Programs by Strategic Outcome

Strategic Outcome One: A safe and sound Canadian financial system.

Program 1.1: Regulation and Supervision of Federally Regulated Financial Institutions

Description:

This program involves regulating and supervising federally regulated financial institutions (FRFIs) to determine whether they are in sound financial condition and are complying with their governing statute law and supervisory requirements; monitoring the financial and economic environment to identify issues that may impact these institutions negatively; and intervening in a timely manner to protect depositors and policyholders from undue loss, while recognizing that management and boards of directors are ultimately responsible, and that financial institutions can fail.

Costs for this program are recovered through base assessments and user fees and charges paid by the federally regulated financial institutions covered under the Bank Act, Trust and Loan Companies Act, Insurance Companies Act and Cooperative Credit Associations Act. The Office of the Superintendent of Financial Institutions also receives revenues for cost-recovered services to provinces, for which it provides supervision of their institutions on a fee for service basis.

Budgetary Financial Resources (dollars)
2014-15
Main Estimates
2014-15
Planned Spending
2015-16
Planned Spending
2016-17
Planned Spending
77,788,097 77,788,097 79,909,307 82,886,559

Human Resources (FTEs)
2014-15 2015-16 2016-17
413 412 412

Performance Measurement
Expected Results Performance Indicators Targets Date to be Achieved
Protect depositors and policy holders while recognizing that all failures cannot be prevented. Estimated Recoveries on Failed Institutions (percentage recovered per dollar of claim). 90% March 31, 2015
Percentage of institutions with a Composite Risk Rating of low or moderate. 80% March 31, 2015
OSFI’s regulatory and supervisory framework is consistent with international standards. OSFI’s regulatory and supervisory framework is deemed consistent with international standards. 100% March 31, 2015

Planning Highlights

As outlined in the organizational priorities section of this report, the overall focus for this program continues to be anticipating and responding to economic and financial system risks and risks emanating from international and domestic regulatory reform. In responding to changes related to these risks, OSFI will continue to evolve and enhance its supervisory practices while ensuring an effective regulatory framework is in place which focuses on protecting depositors and policy holders.

OSFI will also be responding to any recommendations stemming from the 2013 International Monetary Fund’s Financial Sector Assessment for Canada.

Sub-Program 1.1.1: Risk Assessment and Intervention

Description:

OSFI regulates and supervises financial institutions to determine whether they are in sound financial condition and are complying with their governing statute law and supervisory requirements. This program involves the administration and application of an effective supervisory process to assess the safety and soundness of regulated financial institutions by evaluating an institution’s risk profile, financial condition, risk management processes, and compliance with applicable laws and regulations. This program includes activities to monitor and supervise financial institutions; monitor the financial and economic environment to identify emerging issues; and intervene on a timely basis when a financial institution’s business practices may be imprudent or unsafe, by exercising supervisory powers to take, or require management or boards to take, necessary corrective measures as rapidly as possible to protect depositors and policy holders, while recognizing that all failures cannot be prevented.

Budgetary Financial Resources (dollars)
2014-15
Planned Spending
2015-16
Planned Spending
2016-17
Planned Spending
55,287,655 56,750,111 58,864,501

Human Resources (FTEs)
2014-15 2015-16 2016-17
282 281 281

Performance Measurement
Expected Results Performance Indicators Targets Date to be Achieved
Issues in institutions are identified and acted on at an early stage. Percentage of supervisory rating increases that are two or more levels within any rolling three month period. 20% March 31, 2015
Percentage of supervisory letters that are issued within established standards. 80% March 31, 2015

Planning Highlights

For this sub-program, OSFI will focus on enhancing its supervisory processes through the following activities:

  • Review OSFI intervention processes at FRFIs to ensure 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.
  • Ensuring OSFI’s supervisory practices are appropriate to the size and complexity of smaller FRFIs, including foreign branches and subsidiaries.
  • Continuing OSFI’s evolution of its Supervisory methodology and practices.
  • Conducting stress-testing for adverse scenarios and emerging risks, including risks to highly indebted consumers, shocks to interest rate, currency and equity markets, as well as a long period of low interest rates.
  • Assessing operational risk, particularly in the area of cyber risk.
  • Promoting improved risk management practices in FRFIs by assessing risk culture, and the effectiveness of organizations’ risk appetite frameworks, strategic plans and internal control frameworks.

These efforts will contribute to reaching or exceeding established performance targets.

Sub-Program 1.1.2: Regulation and Guidance

Description:

This program involves advancing and administering a regulatory framework of rules and guidance that promotes the adoption by regulated financial institutions of sound risk management practices, policies and procedures designed to plan, direct and control the impact on the institution of risks arising from its operations. This program encompasses the issuance of regulations and guidance, input into federal legislation and regulations affecting financial institutions; contributions to accounting, auditing and actuarial standards; and involvement in a number of international regulatory activities.

Budgetary Financial Resources (dollars)
2014-15
Planned Spending
2015-16
Planned Spending
2016-17
Planned Spending
16,353,979 16,816,425 17,442,969

Human Resources (FTEs)
2014-15 2015-16 2016-17
101 101 101

Performance Measurement
Expected Results Performance Indicators Targets Date to be Achieved
Timely response to market changes and/or industry suggestions that guidance need updating. Percentage of industry stakeholders who rate OSFI as good or very good at responding in a timely manner to market changes or to industry suggestions that guidance need updating. 75% March 31, 2015
Guidance effectively communicates OSFI’s expectations. Percentage of industry stakeholders that rate OSFI’s guidance as somewhat or very effectively indicating OSFI’s expectations. 75% March 31, 2015
Industry is consulted on the development of guidance. Percentage of industry stakeholders that rate OSFI as good or very good at consulting with industry on the development of guidance. 70% March 31, 2015

Planning Highlights

The focus of this sub-program continues to be ensuring that OSFI’s regulatory framework remains effective and responsive by undertaking appropriate adjustments to align with international and domestic developments in the following areas:

Banking:
  • Implementing Basel reforms and monitoring the implementation of banking reforms in other jurisdictions, as well as monitoring the bank responses to global regulatory reforms and adjust, as appropriate, supervisory or regulatory requirements.
  • Supporting FISC partner agencies in establishing a sound resolution framework for major banks and life insurers in Canada.
  • Issuing a Liquidity Adequacy Requirements Guideline, updating the Derivatives Best Practices Guideline, and developing new guidance in the areas of operational risk and business continuity management.
Insurance:
  • Implementing the suite of domestic reforms set out in the Life Insurance Regulatory Framework publication, including continuing development work on more risk sensitive standardized capital framework (Minimum Continuing Capital and Surplus Requirements (MCCSR)) for life insurers (including segregated funds).
  • Issuing the final version of a more risk sensitive Minimum Capital Test (MCT) guideline for property and casualty insurers.
  • Developing guidelines on best practices for mortgage insurance, capital for mortgage insurance companies, and updating the methodology for determining the additional capital requirement for private sector mortgage insurers.
  • Participating in the development of global insurance capital standards and monitoring the implementation of insurance reforms in other jurisdictions as well as considering appropriate Canadian responses.
Both banking and insurance:
  • Finalizing the stand alone parental capital framework.
Accounting:
  • Monitoring and participating in developments in international accounting and auditing standards to identify and ensure that any issues are addressed in FRFI prudential and disclosure requirements.
  • Supporting and monitoring the efforts of the six major Canadian banks to implement the recommendations of the Financial Stability Board’s Enhanced Disclosure Task Force.

These efforts will contribute to reaching or exceeding established performance targets.

Sub-Program 1.1.3: Approvals and Precedents

Description:

Federally regulated financial institutions are required to seek regulatory approval for certain types of transactions. This program: evaluates and processes applications for regulatory consent; establishes positions on the interpretation and application of the federal financial institutions legislation, regulations and guidance; identifies precedential transactions that may raise policy or precedent-setting issues and develops recommendations that recognize the need to allow institutions to compete effectively while undertaking reasonable risks that do not unduly impact the Office of the Superintendent of Financial Institution’s primary stakeholders, the policyholders and depositors of FRFIs.

Budgetary Financial Resources (dollars)
2014-15
Planned Spending
2015-16
Planned Spending
2016-17
Planned Spending
6,146,463 6,342,771 6,579,089

Human Resources (FTEs)
2014-15 2015-16 2016-17
30 30 30

Performance Measurement
Expected Results Performance Indicators Targets Date to be Achieved
Provide transparent and timely decisions on regulatory approvals. Percentage of industry stakeholders that understand somewhat or very well the basis upon which OSFI makes its decisions as part of the approval process. 85% March 31, 2015
Percentage of completed applications for regulatory approvals that are processed within established standards. 90% March 31, 2015

Planning Highlights

The uncertain economic climate puts pressure on many small bank business models, which will present challenges for OSFI’s review of these applications. At the same time, the federal government’s initiative to promote entry and growth of small financial institutions has the potential to lead to an increase in such applications. OSFI will monitor the impact of this initiative on its approach to new entry applications and determine if any changes may be required. In addition, OSFI will introduce a new process for approving reinsurance with unregistered related reinsurers beginning in 2014.

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

Description:

This program involves regulating and supervising federally regulated private pension plans to determine whether they are meeting minimum plan funding requirements and are complying with their governing law and supervisory requirements. This program provides risk assessments of pension plans covering employees in federally regulated areas of employment; timely and effective intervention and feedback to protect the financial interests of plan members and beneficiaries from undue loss, while recognizing that plan administrators are ultimately responsible, and that plans can fail; a balanced relevant regulatory framework; and a prudentially effective and responsive approvals process. This program incorporates risk assessment and intervention, regulation and guidance, and approvals and precedents related to federally regulated private pension plans under the Pension Benefits Standards Act, 1985. The costs for this program are recovered from pension plan fees based on the number of members in each federally regulated pension plan.

Budgetary Financial Resources (dollars)
2014-15
Main Estimates
2014-15
Planned Spending
2015-16
Planned Spending
2016-17
Planned Spending
4,420,260 4,420,260 4,601,001 4,772,664

Human Resources (FTEs)
2014-15 2015-16 2016-17
27 27 27

Performance Measurement
Expected Results Performance Indicators Targets Date to be Achieved
Issues in plans are identified and acted on at an early stage. Percentage of stage rating increases that are two or more levels within any rolling three month period. 20% March 31, 2015
OSFI is perceived as being effective in monitoring and supervising pension plans. Percentage of industry stakeholders that rate OSFI as “somewhat effective” or “very effective” in monitoring and supervising their pension plan(s). 75% March 31, 2015
Guidance effectively communicates OSFI’s expectations. Percentage of industry stakeholders that rate OSFI Guidance as “somewhat effective” or “very effective” in providing an indication of OSFI’s expectations. 75% March 31, 2015

Planning Highlights

As part of anticipating and responding to risks emanating from the economy, financial system and regulatory reform, this program will focus on:

  • Continuing to develop internal processes and external guidance needed to support the implementation of Pooled Registered Pension Plans (PRPPs) as per the Pool Registered Pensions Plans Act.
  • Working with the Canadian Association of Pension Supervisory Authority’s (CAPSA) PRPP Committee to develop a coordinated supervisory approach.
  • Updating and enhancing external guidance to reflect recent changes to federal pension legislation and regulations.
  • Reviewing and considering modifications or enhancements to, pension supervision processes in the targeted areas of:
    • supervision of defined contribution pension plans; and
    • best practices for oversight of investment risk. 

These efforts will contribute to reaching or exceeding established performance targets.

Strategic Outcome Two: A financially sound and sustainable Canadian public retirement income system

Program 2.1: Actuarial Valuation and Advisory Services

Description:

The federal government and the provinces, through the Canada Pension Plan (CPP), public sector pension arrangements and other social programs have made commitments to Canadians and have taken on emanated responsibility for the financing of these commitments. Some are long-term and it is important that decision-makers, Parliamentarians and the public understand these and the inherent risks. This program plays a vital and independent role in this process. It provides checks and balances on the future costs of the different pension plans under its responsibilities.

This program provides a range of actuarial services, under legislation, to the CPP and some federal government departments. It conducts statutory actuarial valuations of the CPP, Old Age Security (OAS) and Canada Student Loans programs, and pension and benefits plans covering the Federal Public Service, the Canadian Forces, the Royal Canadian Mounted Police (RCMP), federally appointed judges, and Members of Parliament.

The Office of the Chief Actuary (OCA) is funded by fees charged for its actuarial valuation and advisory services and by an annual parliamentary appropriation.

Budgetary Financial Resources (dollars)
2014-15
Main Estimates
2014-15
Planned Spending
2015-16
Planned Spending
2016-17
Planned Spending
5,231,775 5,231,775 5,423,820 5,631,855

Human Resources (FTEs)
2014-15 2015-16 2016-17
35 35 35

Performance Measurement
Expected Results Performance Indicators Targets Date to be Achieved
Stewards of Canada’s public retirement income system receive accurate, high quality and timely professional actuarial services and advice. Attestation of panel of three Canadian peer actuaries selected by an international independent body that the OCA provides accurate, high quality and professional services and advice. 100% agreement among all three members of peer review panel March 31, 2015
Use of the OCA’s work by the Office of the Auditor General (OAG) as an independent evidence for Public Accounts Canada. Confirmation from the OAG March 31, 2015
Reports are provided to the Minister for tabling in Parliament as per statutory deadlines. 100% March 31, 2015

Planning Highlights

As part of the OCA’s commitment to provide checks and balances on the future costs of the different pension plans and social programs within its scope of responsibility, the OCA will prepare several statutory reports in 2014-15.

Other projects planned include the publication of several actuarial studies as part of the implementation of recommendations from the most recent peer review. The OCA will also continue to provide expert actuarial advice and services to provincial Ministries of Finance and federal government departments such as the Treasury Board Secretariat, Employment and Social Development Canada (ESDC), Finance Canada, Department of Justice, and the Privy Council Office.

Sub-Program 2.1.1: Services to the Canada Pension Plan and Old Age Security Program

Description:

This program involves the conduct of statutory actuarial valuations of the Canada Pension Plan (CPP) and Old Age Security (OAS) Program. These valuations estimate the financial status of these plans and programs as required by legislation. This program estimates long-term expenditures, revenues and current liabilities of the Canada Pension Plan and estimates long-term future expenditures for Old Age Security programs. Pursuant to the Canada Pension Plan and the Public Pensions Reporting Act, the Office of the Chief Actuary prepares statutory triennial actuarial reports on the financial status of these programs, as required by legislation.

Budgetary Financial Resources (dollars)
2014-15
Planned Spending
2015-16
Planned Spending
2016-17
Planned Spending
1,813,723 1,914,429 1,987,858

Human Resources (FTEs)
2014-15 2015-16 2016-17
11 11 11

Performance Measurement
Expected Results Performance Indicators Targets Date to be Achieved
Provide accurate, high quality and timely actuarial valuations informing Canada Pension Plan (CPP) and Old Age Security (OAS) stakeholders and Canadians of the current and projected financial status of the Plan and Program. CPP actuarial valuations are deemed accurate and high quality 100% March 31, 2015
Percentage of recommendations from the previous peer review report and within the scope and influence of the Office of the Chief Actuary (OCA) that are implemented before the next peer review. 80% March 31, 2017
Reports on CPP and OAS are provided to the Minister for tabling in Parliament as per statutory deadlines. 100% March 31, 2015

Planning Highlights

The OCA will submit the Actuarial Report on the OAS Program as at December 31, 2012 to the Minister of Employment and Social Development Canada. This actuarial report estimates the long-term future expenditures of the OAS program which is one of the cornerstones of Canada’s retirement income system and is financed from Government of Canada general tax revenues. In 2014-15, the OCA will assist the federal, provincial and territorial ministers of Finance in their triennial review of the CPP. The OCA will also begin implementing the most recent Peer Reviewer recommendations following the review of the Actuarial Report (26th) on the Canada Pension Plan as at December 31, 2012 performed during the 2013-14 fiscal year.

In conducting actuarial valuation, the OCA will strive to meet or exceed its accuracy, quality, and timeliness performance targets.

Sub-Program 2.1.2: Services to Public Sector Pension and Insurance Programs

Description:

This program involves the conduct of statutory actuarial valuations of various federal public sector employee pension and insurance plans. These valuations estimate the financial status of these plans as required by legislation. Pursuant to the Public Pensions Reporting Act, this program involves preparing statutory triennial actuarial reports on the financial status of federal public sector employee pension and insurance plans covering the federal Public Service, the Canadian Forces, the Royal Canadian Mounted Police, the federally appointed judges and Members of Parliament. This program supports plan members, thereby serving the public interest, by ensuring good governance of the plan, appropriate disclosure in the actuarial reports and contributing to the overall accountability of the plan sponsor to members. This program also involves the provision of sound actuarial advice that assists different government departments in the design, funding and administration of these plans. As part of this program, the Chief Actuary submits the actuarial reports to the President of Treasury Board.

Budgetary Financial Resources (dollars)
2014-15
Planned Spending
2015-16
Planned Spending
2016-17
Planned Spending
2,565,065 2,642,102 2,743,442

Human Resources (FTEs)
2014-15 2015-16 2016-17
18 18 18

Performance Measurement
Expected Results Performance Indicators Targets Date to be Achieved
Provide accurate, high quality and timely actuarial valuation reports on Public Pension and Insurance Plans to departments to assist with design, funding and administration of the plans. Public Pension and Insurance Plans valuations are deemed accurate and high quality. 100% March 31, 2015
Reports on actuarial valuation of Public Pensions and Insurance Plans are provided to the President of Treasury Board for tabling in Parliament as per statutory deadlines. 100% March 31, 2015

Planning Highlights

The OCA will submit, to the President of the Treasury Board, the Actuarial Reports on the Pension Plan for the Canadian Forces (Regular Force), the Pension Plan for the Canadian Forces (Reserve Force), the Regular Force Death Benefit Account, the Pension Plan for the Public Service of Canada, the Public Service Death Benefit Account and the Benefit Plan Financed Through the Royal Canadian Mounted Police (Dependants) Pension Fund. These reports provide actuarial information to decision makers, Parliamentarians and the public, thereby increasing transparency and confidence in Canada’s retirement income system. This sub-program also involves the provision of sound actuarial advice that assists different government departments such as the Treasury Board Secretariat, Veterans Affairs Canada, National Defense, Royal Canadian Mounted Police (RCMP) and the Department of Justice in the design, funding and administration of the plans for which they are responsible.

In conducting actuarial valuation, the OCA will strive to meet or exceed its accuracy, quality, and timeliness performance targets.

Sub-Program 2.1.3: Services to the Canada Student Loans and Employment Insurance Programs

Description:

Pursuant to the Student Financial Assistance Act, as amended by the Budget Implementation Act, 2009, Employment Insurance Act, and Department of Human Resources and Skills Development Act this program involves the conduct of statutory actuarial valuations of the Canada Student Loans Program (CSLP) and performing the statutory actuarial forecasts and estimates necessary to set the Employment Insurance premium rate under Section 66 of the Employment Insurance Act. As part of this program, the actuarial reports are submitted to the minister of Human Resources and Skills Development.

Budgetary Financial Resources (dollars)
2014-15
Planned Spending
2015-16
Planned Spending
2016-17
Planned Spending
852,987 867,289 900,555

Human Resources (FTEs)
2014-15 2015-16 2016-17
6 6 6

Performance Measurement
Expected Results Performance Indicators Targets Date to be Achieved
Provide accurate, high quality and timely actuarial valuation reports on Canada Student Loans Program (CSLP) and Employment Insurance (EI) to inform stakeholders and Canadians of the future costs and rates for these programs. Use of the OCA’s actuarial valuation of the CSLP by the Office of the Auditor General (OAG) as an external audit evidence for the Public Accounts of Canada. 100% March 31, 2015
Actuarial reports on CSLP and EI programs are submitted to the Minister/Employment Insurance Commissioner for tabling in Parliament as per statutory deadlines. 100% March 31, 2015

Planning Highlights

This sub-program involves the conduct of statutory actuarial valuations of various Government of Canada social programs. The OCA will submit, to the appropriate Minister, the Canada Student Loans Program Inter-Valuation Report as at July 31, 2013, the 2015 Employment Insurance Premium Rate Report, the Actuarial Report on the Government Annuities as at March 31, 2014, and the Actuarial Report on the Civil Service Insurance Program as at March 31, 2014. The OCA will also prepare Prospective Savings and Actuarial Tables for the ESDC. Work on the statutory Actuarial Report on the Canada Student Loans Program as at July 31, 2014 will also begin in 2014-15.

In conducting actuarial valuation, the OCA will strive to meet or exceed its accuracy, quality, and timeliness performance targets.

Internal Services

Description:

Internal Services are groups of related activities and resources that are administered to support the needs of programs and other corporate obligations of an organization. These groups are: Management and Oversight Services; Communications Services; Legal Services; Human Resources Management Services; Financial Management Services; Information Management Services; Information Technology Services; Real Property Services; Materiel Services; Acquisition Services; and Other Administrative Services. Internal Services include only those activities and resources that apply across an organization and not to those provided specifically to a program.

Budgetary Financial Resources (dollars)
2014-15
Main Estimates
2014-15
Planned Spending
2015-16
Planned Spending
2016-17
Planned Spending
55,323,397 55,323,397 73,368,020 71,330,488

Human Resources (FTEs)
2014-15 2015-16 2016-17
194 188 188

Planning Highlights

OSFI’s Internal Services program supports its two strategic outcomes. It is focused on the development and delivery of effective services, policies, advice and guidance in the fields of finance, human resources, security, communication, administration and internal audit. This program is further supported through the development and implementation of cost-effective, secure and reliable information management and technology systems containing relevant, accurate and timely data.

The overall objective of the program is to ensure that OSFI has the proper capacity, processes and systems to allow employees in the business sectors to focus on and perform well in their supervisory, regulatory, and actuarial valuation activities.

The focus for the internal services function includes:

  • Responding to current and emerging business needs through ensuring change management support is in place and identifying and delivering learning needs in a timely and effective manner.
  • Completing the current Information Technology Renewal (ITR) program and preparing OSFI to be able to adopt future emerging technologies in support of planned business needs.
  • Continuing to improve our FRFI and pension plan data governance and delivery processes to ensure accurate and timely analysis for FISC partners, while minimizing burden on filers and OSFI.
  • Continue to strengthen OSFI’s framework of internal controls, including reviewing and improving key internal processes, through a risk-based approach.
  • Developing a vision for the workplace of the future as we prepare for new office accommodation in future years.

 


 

Section III: Supplementary Information

Future-Oriented Statement of Operations

The future-oriented condensed statement of operations presented in this subsection is intended to serve as a general overview of OSFI’s operations. The forecasted financial information on expenses and revenues are prepared on an accrual accounting basis to strengthen accountability and to improve transparency and financial management.

Because the future-oriented statement of operations is prepared on an accrual accounting basis and the forecast and planned spending amounts presented in other sections of this report are prepared on an expenditure basis, amounts will differ.

A more detailed future-oriented statement of operations and associated notes, including a reconciliation of the net costs of operations to the requested authorities, can be found on OSFI’s website.

Future-Oriented Condensed Statement of Operations
For the Year Ended March 31 (dollars)
Financial information Estimated Results
2013-14
Planned Results
2014-15
Change
Total expenses 142,106,000 145,969,000 3,863,000
Total revenues 142,106,000 145,969,000 3,863,000
Net cost of operations 0 0 0

OSFI matches its revenues to its costs. The difference between the figures above and the planned spending amounts provided in other sections of the RPP is due to a different basis of accounting and relate to such items as non-respendable revenues, amortization, severance pay liability adjustment and accrued interest costs. The year-over-year increase of $3,863,000 or 2.7%, in revenues and expenses in 2014-15 is largely related to the full year impact of new resources added in 2013-14 and to annual merit and inflationary increases. For more information, refer to the future-oriented statement of operations found on OSFI’s Web site.

List of Supplementary Information Tables

The supplementary information tables listed in the 2014-15 Report on Plans and Priorities can be found on OSFI’s website.

Tax Expenditures and Evaluations Report

The tax system can be used to achieve public policy objectives through the application of special measures such as low tax rates, exemptions, deductions, deferrals and credits. The Department of Finance publishes cost estimates and projections for these measures annually in the Tax Expenditures and Evaluations publication. The tax measures presented in the Tax Expenditures and Evaluations publication are the sole responsibility of the Minister of Finance.

 


 

Section IV: Organizational Contact Information

Contact Information:

Office of the Superintendent of Financial Institutions
255 Albert Street
Ottawa, Ontario
K1A 0H2

Phone: 1-800-385-8647
Fax: 1-613-952-8219
E-mail: webmaster@osfi-bsif.gc.ca
Web: http://www.osfi-bsif.gc.ca/Eng/Pages/default.aspx

 


 

Greening Government Operations

Goal: Waste and Asset Management
Target: Green Procurement
As of April 1, 2014, the Government of Canada will continue to take action to embed environmental considerations into public procurement, in accordance with the federal Policy on Green Procurement.
Scope and Context
The Office of the Superintendent of Financial Institutions (OSFI) procures over $24 million in goods and services per year, in multiple commodity categories. Although greening of our procurement can be integrated throughout our activities, OSFI is focusing on three prospective areas for greening its procurement: paper products and printing, toner cartridges, and office furniture.
Performance Measurement
Expected Result
Environmentally responsible acquisition, use and disposal of goods and services.
Performance Indicator Targeted Performance Level
Departmental approach to further the implementation of the Policy on Green Procurement in place (as of April 1, 2014). Yes [March 31, 2014]
Number and percentage of specialists in procurement and/or materiel management who have completed the Canada School of Public Service Green Procurement course or equivalent, in the given fiscal year. 8

88%
Number and percentage of managers and functional heads of procurement and materiel whose performance evaluation includes support and contribution towards green procurement, in the given fiscal year. 2

100%
Departmental Green Procurement Target:
By March 31, 2017, 95% of copy paper and envelope purchases will contain a minimum of 30% recycled content and be certified to a recognized environmental standard to reduce the environmental impact of its production.
Performance Indicator Targeted Performance Level
Dollar value of copy paper, commercial printing and envelope purchases that meet the target objective as a percentage of total dollar value of all copy paper and envelope purchases in the year in question. 95%
Annual amount spend on copy paper, commercial printing and envelopes. $30,864
Departmental Green Procurement Target:
By March 31, 2017, 90% of toner cartridges are recycled at end of life.
Performance Indicator Targeted Performance Level
Volume of toner cartridges recycled as a percentage of total volume of all toner cartridges purchased in the year in question. 90%
Annual amount spent on toner cartridges. $70,391
Departmental Green Procurement Target:
By March 31, 2017, 70% of office furniture purchases will include criteria to reduce the environmental impact associated with the acquisition of the furniture.
Performance Indicator Targeted Performance Level
Dollar value of office furniture purchases that meet the target objective as a percentage of total dollar value of all office furniture purchases for the year in question. 70%
Annual amount spend on office furniture. $544,435
Implementation Strategy Element or Best Practice Targeted Performance Level
Leverage common use procurement instruments where available and feasible. Seeking to reach “Achieved” Status
Best Practice
Increase awareness of the Policy on Green Procurement among managers.
Seeking to reach “Achieved” Status

 

 


 

Upcoming Internal Audits and Evaluations over the next three fiscal years

A. All upcoming Internal Audits over the next three fiscal years
1. Name of Internal Audit 2. Internal Audit Type 3. Status 4. Expected Completion Date
Supervision Sector: Deposit-Taking Group – Non-Conglomerates Risk Assessment & Intervention In Progress Q1 2014/15
Regulation Sector: Actuarial Division Risk Assessment & Intervention In Progress Q1 2014/15
Regulation Sector: Private Pension Plans Division Risk Assessment and Intervention (Supervision) 2014-2015 Planned Q4 2014/15
Corporate Services Sector: Regulatory (formerly FRFI) Data Management Information Security 2014-2015 Planned Q4 2014/15
Supervision Sector: Supervision Support Group – Credit Risk Division Supervisory Support 2014-2015 Planned
Moved up from 2015-16
Q4 2014/15
Office of the Chief Actuary – IT Models and Data Management Information Management 2014-2015 Planned Q4 2014/15
Supervision Sector: Supervision Support Group – Operational Risk Division Supervisory Support 2015-2016 Planned Q4 2015/16
Supervision Sector: Supervision Support Group – Practices Supervisory Support 2015-2016 Planned Q4 2015/16
Supervision Sector: Property & Casualty Group Mortgage Insurance Risk Assessment & Intervention 2015-2016 Planned Q4 2015/16
Supervision Sector: Life-Insurance Group – Non-Conglomerates Risk Assessment & Intervention Deferred from 2014-15 -
2015-2016 Planned
Q4 2015/16
Regulation Sector: Approvals and Precedents Precedents 2015-2016 Planned Q4 2015/16
Corporate Services Sector: Regulatory (formerly FRFI) Data Management Information Management Deferred from 2014-15 -
2015-2016 Planned
Q4 2015/16
Supervision Sector: Deposit-Taking Group Conglomerates Risk Assessment & Intervention 2016-2017 Planned Q4 2016/17
Supervision Sector: Supervision Support Group – Corporate Governance Supervisory Support Deferred from 2015-16 -
2016-2017 Planned
Q4 2016/17
Regulation Sector: Legislation and Policy Initiatives Rule-Making 2016-2017 Planned Q4 2016/17
Corporate Services Sector: Information Management / Information Technology Information Management 2016-2017 Planned Q4 2016/17
Corporate Services Sector: Corporate Planning and Risk Management Corporate Planning and Risk Management 2016-2017 Planned Q4 2016/17

Audits identified as “planned” may be subject to change due to shifting of priorities based on the annual evaluation of risk elements. The Audit Committee approves OSFI’s Annual Audit Plan two years ahead. The most recent Audit Plan and Audit Reports are available on OSFI’s website: (http://www.osfi-bsif.gc.ca/Eng/osfi-bsif/rep-rap/iar-rvi/Pages/default.aspx).

 


 

Future-oriented Statement of Operations
For the years ending March 31, 2014 and 2015

Statement of Management Responsibility for the Future-Oriented Statement of Operations

Responsibility for the compilation, content and presentation of the Future-Oriented Statement of Operations and accompanying notes for the years ending March 31, 2014 and 2015 rests with the Office of the Superintendent of Financial Institutions’ (OSFI’s) management, including the appropriateness of the underlying assumptions. This Future-Oriented Statement of Operations has been prepared by management based on the best information available and assumptions adopted as at November 27, 2013, in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

The actual results achieved for the fiscal years covered in the accompanying Future-Oriented Statement of Operations will vary from the forecast information presented and these variations may be material.

The Future-Oriented Statement of Operations has not been audited.

 

Marie-France Caron CPA, CA
Acting Chief Financial Officer

 

Julie Dickson
Superintendent of Financial Institutions

Ottawa, Canada
January 6, 2014

 

Office of the Superintendent of Financial Institutions
Future-oriented Statement of Operations
For the years ending March 31, 2014 and 2015 (in thousands of Canadian dollars)
(Unaudited)

  Note Planned
Results
2015
Estimated
Results
2014
Regulation and Supervision of  Federally Regulated Financial Institutions
Revenue 10, 11 $ 130,920 $126,960
Expenses 10, 11 130,920 126,960
Administrative Monetary Penalties Revenue 12 200 200
Administrative Monetary Penalties Revenue Earned on Behalf of the Government   (200) (200)
Regulation and Supervision of Federally Regulated Private Pension Plans
Revenue 10, 11 7,412 7,587
Expenses 10, 11 7,412 7,587
Net Results   - -
Actuarial Valuation and Advisory Services
Revenue 10, 11 6,699 6,621
Expenses 10, 11 7,637 7,559
Net Results   (938) (938)
Net Results of Operations Before Government Funding   (938) (938)
Government Funding 8 938 938
Net Results of Operations   $ - $ -

The accompanying notes form an integral part of this Future-Oriented Statement of Operations.

1. Authority and Objectives

Mandate

The Office of the Superintendent of Financial Institutions (OSFI) was established by the Office of the Superintendent of Financial Institutions Act (OSFI Act) in 1987. Pursuant to the Financial Administration Act (FAA), OSFI is a division of the Government of Canada for the purposes of that Act and is listed in schedule I.1 of the Act. The Government of Canada is OSFI’s parent and the ultimate controlling party of OSFI.

In 1996, OSFI subsequently received a legislated mandate that clarified its objectives in the regulation and supervision of federal financial institutions and private pension plans. In support of a safe and sound Canadian financial system, OSFI’s mandate under the legislation is to:

  • Supervise federally regulated financial institutions (FRFIs) and private 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.

The Office of the Chief Actuary provides a range of actuarial valuation and advisory services, under the Canada Pension Plan Act and the Public Pensions Reporting Act to the Canada Pension Plan (CPP) and some federal government departments, including the provision of advice in the form of reports tabled in Parliament.

Revenue and spending authority

Pursuant to Section 17 of the OSFI Act, the Minister of Finance may spend any revenues collected under Sections 23 and 23.1 of the OSFI Act to defray the expenses associated with the operation of OSFI. The Act also establishes a ceiling for expenses at $40 million above the amount of revenue collected to be drawn from the Consolidated Revenue Fund of Canada (CRF).

OSFI’s revenues comprise assessments, service charges and fees. The expenses against which assessments may be charged include those in connection with the administration of the Bank Act, the Cooperative Credit Associations Act, the Green Shield Canada Act, the Insurance Companies Act, the Protection of Residential Mortgage or Hypothecary Insurance Act and the Trust and Loan Companies Act. The formula for the calculation of assessments is included in regulations.

Section 23 (2) of the OSFI Act provides that assessments may be charged for the administration of the Pension Benefits Standards Act, 1985 (PBSA, 1985) and the Pooled Registered Pension Plans Act. The assessments are set annually by regulation pursuant to Section 23 (2) of the OSFI Act.

Section 23.1 of the OSFI Act provides that the Superintendent may assess against a person a prescribed charge (“service charge”) and applicable disbursements for any service provided by or on behalf of the Superintendent for the person's benefit or the benefit of a group of persons of which the person is a member. “Person” includes individuals, corporations, funds, unincorporated associations, Her Majesty in Right of Canada or of a province, and a foreign government. The service charges are detailed in the regulations.

Pursuant to Section 16 of the OSFI Act, Parliament provides annual appropriations to support the operations of the Office of the Chief Actuary.

2. Background Information

This Future-Oriented Statement of Operations was authorized for issue by the Superintendent of Financial Institutions on January 6, 2014. OSFI’s principal activities are described in Note 1. The head office is located at 255 Albert Street in Ottawa, Ontario, Canada.

3. Significant Assumptions

The Future-Oriented Statement of Operations has been prepared on the basis of the government priorities and the plans of the agency as described in OSFI’s 2014-2015 Report on Plans and Priorities. The significant assumptions are as follows:

  1. Expenses and revenues, including the determination of amounts internal and external to the government, are based on historical experience and trends, as well as known new requirements.
  2. OSFI’s full-time equivalent staffing level is forecast to increase by 5.3% in the year ending March 31, 2014 and 0.4% in the year ending March 31, 2015 to respond to risks emanating from the economy, the financial system and regulatory reforms.
  3. OSFI is making significant capital investments to upgrade its aging core infrastructure and applications, as part of the implementation of the Information Management/Information Technology Strategy approved in 2009-2010.
  4. The employee benefit rate in 2013-2014 is the rate prescribed by the Treasury Board Secretariat (TBS) at the beginning of the 2013-2014 fiscal year; while the rate for 2014-2015 is the rate provided by TBS for the 2014-2015 Annual Reference Level Update.
  5. The salary economic adjustment of 2.0% for 2013-2014 reflects OSFI’s collective agreements, while the rate for 2014-2015 represents OSFI’s best estimates as per the latest approved budget. OSFI’s collective agreements will expire on March 31, 2014.
  6. The estimated results for the year ending March 31, 2014 are projected results based on year-to-date spending at October 31, 2013. The forecast for the year ending March 31, 2015 reflects management’s most recent estimate based on the significant assumptions noted in this section, and OSFI’s business plans for 2013-2016. It also assumes that there will be no changes to OSFI's funding model.

4. Variations and Changes to the Forecast Financial Information

While every attempt has been made to reasonably forecast results for the remainder of the year ending March 31, 2014 and for the year ending March 31, 2015, actual results achieved for both years are likely to vary from the forecast information presented, and this variation could be material.

In preparing this Future-Oriented Statement of Operations, OSFI has made estimates and assumptions concerning the future. These estimates and assumptions may differ from the subsequent actual results. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Factors that could lead to material differences between the Future‑Oriented Statement of Operations and the Statement of Operations include:

  1. The timing and amounts of acquisitions of property, plant and equipment and intangible assets may affect amortization expense.
  2. Implementation of new collective agreements.
  3. Further changes to the operating budget to respond to risks emanating from the economy, the financial system and regulatory reforms.
  4. Fluctuations in the discount rate used to calculate actuarial gain/loss on the severance and sick leave liabilities.

Once the Report on Plans and Priorities is presented, OSFI will not be updating the forecasts for any changes in financial resources made in ensuing supplementary estimates. Variances will be explained in the Departmental Performance Report.

5. Basis of Preparation

The Future-Oriented Statement of Operations has been prepared on a historical cost basis and is presented in Canadian dollars because that is the currency of the primary economic environment in which OSFI operates.

Statement of compliance

The Future-Oriented Statement of Operations of OSFI has been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The accounting policies are based on the IFRS applicable as at September 30, 2013, and encompasses individual IFRS, International Accounting Standards (IAS), and interpretations made by the International Financial Reporting Interpretations Committee (IFRIC) and the Standing Interpretations Committee (SIC). The policies set out below are consistently applied to all periods presented.

6. Significant Accounting Policies

The principal accounting policies of OSFI are set out below:

a) Impairment of financial assets

OSFI assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

For financial assets carried at amortized cost, OSFI first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If OSFI determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate.

If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to the Statement of Operations depending on the receivable that gave rise to the initial impairment.

b) Property, plant and equipment

Property, plant and equipment is stated at historical cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Historical cost includes the costs of replacing parts of property and equipment when incurred, if the recognition criteria are met. Repair and maintenance costs are recognized in the Statement of Operations as incurred.

Depreciation is recorded using the straight-line method over the estimated useful lives of the assets as follows:

Assets Useful Life
Leasehold improvements Lesser of useful life or remaining term of the lease
Furniture and fixtures 7 years
Office equipment 4 years
Informatics hardware 3 or 5 years
Informatics infrastructure (Networks) 4 or 5 years
Informatics software 5 years

The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end, and adjusted prospectively if appropriate.


c) Intangible assets

Intangible assets consist of internally developed and externally purchased software that is not an integral part to the related hardware.

Following initial recognition of the development expenditure as an asset, the historical cost model is applied requiring the asset to be carried at cost less any accumulated amortization and accumulated impairment losses. Intangible assets acquired separately are measured on initial recognition at cost. The cost of internally developed software consists of directly attributable costs necessary to create, produce, and prepare the software to be capable of operating in the manner intended by OSFI.

OSFI holds intangible assets that have finite lives and are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method is reviewed at least at each financial year end. Amortization is calculated using the straight-line method over their estimated useful lives of five years and is recorded in the relevant expense line item depending on the business activity to which the expense pertains.

Amortization of the assets begins when development is complete and the assets are available for use. They are amortized over the period of expected future benefit.

Costs incurred during the pre-development stage are expensed in the period incurred.

d) Impairment of non-financial assets

OSFI assesses at each reporting date whether there are any internal indicators that an asset may be impaired (e.g. damaged assets or assets no longer being used). If any indication exists, or when annual impairment testing for an asset is required, OSFI estimates the asset’s recoverable amount.

An asset's recoverable amount is the higher of an asset’s fair value less cost to sell and its value in use. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. There is no risk of not recovering the carrying amount of the asset given OSFI’s ability to recover all costs from Federally Regulated Financial Institutions and Federally Regulated Private Pension Plans.

OSFI asseses internally developed intangible assets not yet in use for impairment on an annual basis.

e) Employee benefits

i. Short-term benefits

Short-term benefits are recorded in the Statement of Operations when an employee has rendered the service. Unpaid short-term compensated leave that has vested at the reporting date is accrued at year end and not discounted. Short-term compensated leave expected to occur within twelve months of the reporting date is classified as short-term employee benefits. OSFI contributes to the Government of Canada sponsored Public Service Health Care Plan and Dental Service Plan for employees.

ii. Post employment benefits
Pension benefits

Substantially all of the employees of OSFI are covered by the public service pension plan (the “Plan”), a contributory defined benefit plan established through legislation and sponsored by the Government of Canada. Contributions are required by both the employees and OSFI to cover current service cost. Pursuant to legislation currently in place, OSFI has no legal or constructive obligation to pay further contributions with respect to any past service or funding deficiencies of the Plan. Consequently, contributions are recognized as an expense in the year when employees have rendered service and represent the total pension obligation of OSFI.

Severance benefits

On termination of employment, employees are entitled to certain benefits provided for under their conditions of employment through a severance benefits plan. The cost of these benefits is accrued as the employees render their services necessary to earn severance benefits. The severance benefits are based upon the final salary of the employee.

The cost of benefits is actuarially determined as at March 31 of each year using the projected benefit method prorated on service. The obligation is unfunded. The calculation of the liability is based upon a current market discount rate which is based on the market yields at the valuation date on high quality corporate bonds and other actuarial assumptions, which represent management’s best long-term estimates of factors such as future wage increases and employee resignation rates. All actuarial gains (losses) are recognized in the Statement of Operations in the period in which they arise.

Other benefits

The Government of Canada sponsors a variety of other benefit plans from which former employees may benefit upon retirement. The Public Service Health Care Plan and the Pensioners’ Dental Service Plan are the two major plans available to OSFI retirees. These are defined benefit plans sponsored by the Government of Canada. Contributions are required by OSFI to cover current service cost. Pursuant to legislation currently in place, OSFI has no legal or constructive obligation to pay further contributions with respect to any past service or funding deficiencies of the Plan. Consequently, contributions are recognized as an expense in the year when employees have rendered service and represent the total obligation of OSFI with respect to these plans.

iii. Other long-term benefits
Sick leave

Employees are eligible to accumulate sick leave until retirement or termination. Unused sick leave is not eligible for payment on retirement or termination, nor can it be used as vacation. All sick leave is an accumulating non-vesting benefit. A liability is recorded for sick leave balances expected to be taken in excess of future allotments.

The cost of sick leave as well as the present value of the obligation is determined using an actuarial valuation. Any gains and losses are recognized in net results in the period in which they arise.

f) Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments under operating leases (net of any incentives received from the lessor) are charged to the Statement of Operations on a straight-line basis over the period of the lease.

OSFI does not have borrowing authority and therefore cannot enter into lease agreements that are classified as finance leases. OSFI has established procedures to review all lease agreements and identify if the proposed terms and conditions would result in a transfer to OSFI of substantially all the benefits and risks incidental to ownership.

OSFI records the costs associated with operating leases in the Statement of Operations in the period in which they are incurred.

g) Statement of Operations

The format of the Statement of Operations has been designed to show the revenues and expenses by each of OSFI’s business lines. It is considered that this format best represents the nature of the activities of OSFI. Expenses have been disclosed by nature in Note 11 of this Future-Oriented Statement of Operations.

h) Revenue recognition

OSFI recognizes revenue so as to recover its expenses. Any amounts that have been billed for which costs have not been incurred are classified as unearned on the Statement of Financial Position. Revenue is recorded in the accounting period in which it is earned (service provided) whether or not it has been billed or collected. At the end of the period, amounts may have been collected in advance of the incurrence of costs or provision of services, alternatively, amounts may not have been collected and are owed to OSFI.

Base Assessments - Revenue from base assessments is recognized based on actual costs incurred as services are charged based on cost recovery and all costs are considered recoverable. Base Assessments are billed annually based on an estimate of the current fiscal year’s operating costs (an interim assessment) together with a final accounting of the previous year’s assessment for actual costs incurred. Assessments are calculated prior to December 31 of each year, in accordance with Section 23(1) of the OSFI Act and the Assessment of Financial Institutions Regulations, 2001. Differences between billed estimates and actual costs incurred at the end of the period are recorded as accrued base assessments or unearned base assessments.

Pension Plan Fees are earned from registered pension plans. Fee rates are set annually by regulation based on budgeted expenses, pension plan membership and actual results from previous years. Pension plan fees are charged in accordance with Section 23(2) of the OSFI Act. Revenue from pension plan fees is recognized based on actual costs incurred as services are charged based on cost recovery and all costs are considered recoverable. Differences between the amounts billed to industry and actual cost incurred at the end of the period are recorded as accrued pension plan fees or unearned pension plan fees.

User Fees and Charges include revenue earned pursuant to the Charges for Services Provided by the Office of the Superintendent of Financial Institutions Regulations, 2002 - as amended from time to time - in respect of legislative approvals and approvals for supervisory purposes, and surcharges assessed to federally regulated financial institutions assigned a “stage” rating pursuant to the Guide to Intervention for Federal Financial Institutions. Assessment surcharges are charged in accordance with the Assessment of Financial Institutions Regulations, 2001. Revenue from user fees and charges is recognized by reference to the stage of completion of the service. Percentage of completion is measured based on actual services performed to date as a percentage of total services to be completed.

Administrative Monetary Penalties are penalties levied to financial institutions when they contravene a provision of a financial institutions Act and are charged in accordance with the Administrative Monetary Penalties (OSFI) Regulations. Penalties levied are not available to reduce the net costs that OSFI assesses the industry (i.e., they are non-respendable) and are remitted to the Consolidated Revenue Fund when collected. OSFI assesses its Administrative Monetary Penalty revenue against specific criteria in order to determine if it is acting as principal or agent. OSFI has concluded that it is acting as a principal for Administrative Monetary Penalty revenue.

Cost-Recovered Services represent revenue earned from sources other than those listed above. These services are provided in accordance with the terms and conditions agreed to by the transacting parties. Revenue from cost-recovered services is recognized based on actual costs incurred and all costs are considered recoverable. Revenue and the matching expenses from cost recovered services not specifically related to the Regulation and Supervision of Federally Related Pension Plans or Actuarial Valuation and Advisory Services are grouped with the Regulation and Supervision of Federally Regulated Financial Institutions on the Statement of Operations. This includes items recovered from other government entities including the cost of supervision of the Canada Mortgage and Housing Corporation in accordance with the National Housing Act.

i) Provisions

Provisions are recognized when OSFI has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the Statement of Operations. If the effect of the time value of money is material, provisions are discounted using a rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized in net results.

j) Government funding

Government funding, including parliamentary appropriations, are recognized when there is reasonable assurance that the funding will be received and all attached conditions will be complied with. When the funding relates to an expense item, it is recognized as income over the period necessary to match the funding on a systematic basis to the costs that it is intended to compensate. The funding and the corresponding expense item are recognized at their gross amounts.

7. Significant Accounting Judgments, Estimates and Assumptions

The preparation of OSFI’s Future-Oriented Statement of Operations requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability in which case, the impact will be recognized in the financial statements of a future fiscal period.

Judgments

In the process of applying its accounting policies, management has made the following judgments which have the most significant effect on the amounts recognized in the Future-Oriented Statement of Operations:

Operating lease commitments - OSFI as lessee

Public Works and Government Services Canada (PWGSC) enters into commercial property leases for OSFI's office space and recovers such cost from OSFI. OSFI also enters into leases for certain office equipment. OSFI has determined, based on an evaluation of the terms and conditions of the arrangements, that significantly all of the risks and rewards of ownership have not been transferred to OSFI and as such accounts for these contracts as operating leases.

Administrative monetary penalty revenue - OSFI as principal

OSFI collects administrative monetary penalties from financial institutions when they contravene a provision of a financial institutions Act.  OSFI has determined that it is the principal in the arrangement and records the administrative monetary penalties as revenue.

Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the reported amounts of revenues, expenses, assets and liabilities within the next financial year are discussed below:

Estimated useful lives of assets

The estimated useful lives of property, plant and equipment and intangible assets are based on management’s intentions with respect to the asset, historical experience with the asset, internal asset management plans and other factors as determined by management. The useful lives are reviewed on an annual basis and any revisions to the useful lives are accounted for prospectively.

Severance benefits

The cost of the defined benefit severance plan as well as the present value of the obligation is determined using an actuarial valuation. The actuarial valuation involves making assumptions about discount rates, future salary increases, and departure rates. All assumptions are reviewed annually as at March 31. In determining the appropriate discount rate management considers the interest rates of corporate bonds in Canada with an AAA or AA rating and with maturities matching the estimated cash flows of the severance payments. Departure rates are based on experience from the public service of Canada and include mortality, disability, termination and retirement. Future salary increases and pension increases are based on expected future inflation rates in Canada.

Sick leave

The cost of sick leave as well as the present value of the obligation is determined using an actuarial valuation. The actuarial valuation involves making assumptions about discount rates, future salary increases, usage rates, and departure rates. All assumptions are reviewed annually as at March 31. In determining the appropriate discount rate management considers the interest rates of corporate bonds in Canada with an AAA or AA rating and with maturities matching the estimated sick leave usage. Departure rates are based on experience from the public service of Canada and include mortality, disability, termination and retirement. Future salary increases are based on expected future inflation rates in Canada.

Discount Rates

Since the estimated cash flows of the severance payments and the estimated sick leave usage are unrelated, the discount rates determined above may differ.

8. Related Party Transactions

a) The ultimate parent

The Government of Canada is the ultimate parent of OSFI, and has control over OSFI.

b) Compensation of Key Management Personnel

Key Management Personnel includes the following positions: the Superintendent, Deputy Superintendents, Assistant Superintendent, the Chief Actuary and all Senior and Managing Directors or equivalent level positions at OSFI. Total compensation forecasted to be paid to key management personnel for the year ending March 31 is provided in the table below.

  2015 2014
Short-term employee benefits (including salaries) $13,884 $13,186
Post-employment benefits 5,706 5,263
Other long-term benefits 211 203
Total $19,801 $18,652
Average Number of Employees 49 49

c) Government related entities

OSFI is related, in terms of common ownership, to all Government of Canada departments, agencies and crown corporations. OSFI enters into transactions with these entities in the normal course of business and on normal trade terms. These transactions are measured at the exchanged amount, which is the amount of consideration established and agreed to by the related parties.

For the year ending March 31, 2014, OSFI forecasts purchases of goods and services of $31,058 (2015 - $30,794) and earned revenue of $11,298 (2015 - $11,361) from transactions with other government departments. Individually these transactions are in the normal course of business. Although most transactions are not individually significant, OSFI forecasts the following individually significant transactions:

Entity Nature 2014
Expenditure
2015
Expenditure
Treasury Board Pension contributions and other employee benefits $21,498 $20,985
PWGSC Rent and other services $7,340 $8,064

 

Entity Nature 2014
Revenue
2015
Revenue
Canada Mortgage and Housing Corporation Cost recovered services $4,000 $4,000
Human Resources and Skills Development Canada Actuarial valuation and advisory services $3,743 $3,717

OSFI receives an annual parliamentary appropriation pursuant to Section 16 of the OSFI Act to support its mandate relating to the OCA. OSFI was granted $938 for 2013-2014 and expects to be granted $938 for 2014-2015 which has been recognized into net results and shown on the Future-Oriented Statement of Operations. There are no unfulfilled conditions or contingencies attached to this appropriation.

9. Employee Benefits - Pension Benefits

Substantially all of the employees of OSFI are covered by the public service pension plan (the “Plan”), a contributory defined benefit plan established through legislation and sponsored by the Government of Canada. Contributions are required by both the employees and OSFI. The President of the Treasury Board of Canada sets the required employer contributions based on a multiple of the employees’ required contribution. The general contribution rate forecasted for the end of the year is 12.234 % (2015 - 11.601%). Total contributions of $10,180 (2015 - $9,998) are expected to be recognized as an expense during the year.

The Government of Canada holds a statutory obligation for the payment of benefits relating to the Plan. Pension benefits generally accrue up to a maximum period of 35 years at an annual rate of 2 percent of pensionable service times the average of the best five consecutive years of earnings. The benefits are coordinated with Canada/Quèbec Pension Plan benefits and they are indexed to inflation.

10. Revenue and Expenses by Business Activity

Revenue by Business Activity
March 31, 2015 Base Assessments Cost-Recovered Services Pension
Plan Fees
User Fees
and
Charges
Total
Regulation and Supervision of
Federally Regulated Financial Institutions
$122,550 $4,696 $ - $3,674 $130,920
Regulation and Supervision of Federally Regulated Private Pension Plans - - 7,412 -  7,412
Actuarial Valuation and Advisory Services - 6,699 - -  6,699
Total Revenue Earned from Respendable Sources $122,550 11,395 7,412 $3,674 $145,031

 

Revenue by Business Activity
March 31, 2014 Base
Assessments
Cost-Recovered Services Pension
Plan Fees
User Fees
and
Charges
Total
Regulation and Supervision of
Federally Regulated Financial Institutions
$117,899 $4,710 $ - $4,351 $126,960
Regulation and Supervision of Federally Regulated Private Pension Plans - - 7,587 - 7,587
Actuarial Valuation and Advisory Services - 6,621 - - 6,621
Total Revenue Earned From Respendable Sources $117,899 $11,331 $7,587 $4,351 $141,168

Expenses by Business Activity
  2015 2014
Regulation and Supervision of Federally Regulated
Financial Institutions
Risk Assessment and Intervention $93,374 $90,610
Regulation and Guidance 26,664 25,814
Approvals and Precedents 10,882 10,536
Total 130,920 126,960
Regulation and Supervision of Federally Regulated
Private Pension Plans
7,412 7,587
Actuarial Valuation and Advisory Services
Public Sector Pension and Insurance Programs 3,685 3,543
Canada Pension Plan and Old Age Security Program 2,708 2,806
Canada Student Loans Program 1,244 1,210
Total 7,637 7,559
Total Expenses $145,969 $142,106

11. Revenue and Expenses by Major Classification

  2015 2014
Revenue
Base Assessments $122,550 $117,899
Cost-Recovered Services 11,395 11,331
Pension Plan Fees 7,412 7,587
User Fees and Charges 3,674 4,351
Total Revenue Earned from Respendable Sources 145,031 141,168
Expenses
Human Resources 110,111 108,274
Information Management/Technology 15,056 13,305
Facilities 10,408 9,935
Administration 4,035 4,049
Travel 3,658 3,662
Professional Development 1,751 1,821
Professional Services 950 1,060
Total Expenses 145,969 142,106
Net Results of Operations before Government Funding and Non-
Respendable Administrative Monetary Penalties Revenue
(938) (938)
Government Funding 938 938
Administrative Monetary Penalties Revenue 200 200
Administrative Monetary Penalties Earned on Behalf of the Government (200) (200)
Net Results of Operations $ - $ -
Average Number of Employees 673 670

Human Resources Expenses
  2015 2014
Wages and salaries $85,648 $82,086
Other benefits 12,863 13,700
Post-employment benefits other than Severance 9,998 10,180
Other Personnel Costs 1,320 2,021
Severance benefits 282 287
Total Human Resources Expenses $110,111 $108,274

12. Administrative Monetary Penalties

Administrative monetary penalties levied by OSFI are remitted to the CRF. The funds are not available for use by OSFI and are not included in the balance of the Cash Entitlement. As a result, the penalties do not reduce the amount that OSFI assesses the industry in respect of its operating costs. Refer to Note 6(h) for further information on OSFI's accounting policy as it relates to administrative monetary penalty revenue.

For the year ending March 31, 2014, OSFI is forecasted to levy $200 (2015 - $200) in administrative monetary penalties.

13. Operating Lease Arrangements

OSFI enters into operating lease agreements for office space and office equipment in four locations across Canada and contracts for services. These leases have an average life of between one and nine years with no renewal option included in the contracts. There are no restrictions placed upon OSFI when entering into these leases. The forecast minimum aggregate annual payments for future fiscal years can be reasonably estimated as follows:

  2015 2014
Within one year $4,571 $5,333
After one year but not more than five years 806 5,207
More than five years 215 384
Total $5,592 $10,924

Since most leases expire before the end of 2015, the forecasted lease obligations due for 2015 are lower than for 2014.

14. Parliamentary Authorities

OSFI is funded mainly through assessments on the financial institutions and private pension plans that it regulates and supervises, and a user‑pay program for selected services as explained in Note 6(h).  Revenues are accounted for on the same basis as expenses, full accrual accounting in accordance with IFRS.

OSFI also receives a small parliamentary appropriation of $938 for actuarial services relating to public sector employee pension and insurance plans. The appropriation represents less than 0.7% of OSFI’s annual budget and is recognized as Government Funding in the Future-Oriented Statement of Operations.