Office of the Superintendent of Financial Institutions
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Appropriate Minister: Joe Oliver
Institutional Head: Jeremy Rudin (effective June 29, 2014)
Ministerial portfolio: Finance
Enabling Instrument(s): Office of the Superintendent of Financial Institutions Act (OSFI Act)Endnote i
Year of Incorporation / Commencement: 1987
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.
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 Program and other public sector pension and benefit plans.
OSFI's legislated mandate is to:
OSFI’s legislation acknowledges the need to allow institutions to compete effectively and take reasonable risks. It also recognizes that management, boards of directors and plan administrators are ultimately responsible and that financial institutions and pension plans can fail.
The following tables present a summary of achievements against OSFI’s priorities in 2013-14.
In 2013-14, the following steps were undertaken and successfully supported Priority A. They contributed to fostering a safe and sound Canadian financial system through the provision of guidance, strong oversight in targeted areas and by drawing from and contributing to international financial sector forums.
In 2013-14, the following steps were undertaken and successfully supported Priority B. They contributed to fostering a safe and sound Canadian financial system through research and analysis and the provision of guidance. Also, efforts allowed OSFI to anticipate, understand, and when practicable, influence changes to international standards and practices.
In 2013-14, the following steps were undertaken and successfully supported Priority C. They contributed to fostering a safe and sound Canadian financial system as well as a financially sound and sustainable Canadian public retirement income system by helping to ensure that OSFI has the capacity and expertise it needs to deliver on business objectives.
In 2013-14, the following steps were undertaken and successfully supported Priority D. They contributed to fostering a safe and sound Canadian financial system as well as a financially sound and sustainable Canadian public retirement income system by helping to ensure that OSFI has the information, tools and systems it needs to deliver on business objectives.
OSFI operates in a constantly changing environment reflected by uncertain economic and financial conditions and an industry that can undergo periods of rapid change and that is becoming increasingly complex. OSFI's ability to achieve its mandate and objectives is impacted by the range of risks that exist in such circumstances.
While this section focuses on externally driven risks, OSFI has also dedicated significant efforts to managing internal risks related to its human resources and systems. This is noteworthy given the important role that OSFI staff and supporting systems play in responding to changes in the business environment.
OSFI priorities are informed by risks identified through the enterprise-wide risk management process. As a result, there is a strong alignment between the risk response strategies noted in the following table and the steps taken under Priorities A and B as described under the previous section on Organizational Priorities.
In 2013-14, OSFI paid particular attention to 3 risk areas that are detailed below.
Economic, Industry and Regulatory Environment: risk pertaining to the ability of federally regulated financial institutions and pension plans to cope with slow economic growth, associated exceptionally low interest rates, and rising household indebtedness.
It also links to strategies and business models adopted by federally regulated financial institutions and pension plans to yield benefits in such an environment.
Also, it relates to 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 response strategy continued to be effective in identifying areas where financial institutions and pension plans were exposed to risk, and allowed for early intervention actions.
Also refer to performance information presented under Programs 1.1 and 1.2.
Strategic Outcome 1:A safe and sound Canadian financial system.
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 continued disruptions in global financial markets. The risk encompasses the downstream effects – intended and unintended – of the changes made.
This risk was identified in the 2013-14 RPP.
2013-14 risk responses included:
The risk response strategy continued to contribute to the effective mitigation of the risk given that it supported strengthening the frameworks for capital, leverage and liquidity consistent with international developments that, in turn, promotes a more resilient global financial sector.
Also refer to performance information presented under the Program 1.1.
Changes to International Financial Reporting Standards (IFRS) 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 under the new standards.
The risk response strategy continued to effectively ensure that OSFI’s prudential views were communicated and understood. It also ensured that financial institutions were aware of OSFI expectations regarding their adoption of amended accounting standards. In addition, OSFI conveyed its views on supervisory expectations concerning audit quality through its involvement in the BCBS guidance regarding the external audit of a bank.
Also refer to performance information presented under the Program 1.1.
During 2013-14, the global economic environment remained uncertain. Potential vulnerabilities included the continuation of historically low interest rates and the lack of growth in several advanced economies.
Despite external weaknesses the Canadian economy continued to expand, albeit modestly, and was conducive to good financial performance for financial institutions. Household indebtedness, interest rate levels, and ongoing global financial uncertainty however continued to be seen as sources of potential systemic vulnerability and OSFI continues to be concerned about the susceptibility of financial institutions under such systemic conditions.
Federally regulated private pension plans benefited from strong equity market returns and higher discount rates used to value plan liabilities. These positive factors, combined with special payments made by employers during the year, contributed to a significant improvement in the solvency positions of defined benefit plans in 2013.
Throughout the year, OSFI worked with various federal government organizations to review developments in the financial system as well as to discuss and coordinate approaches to overseeing the financial sector. OSFI also engaged with international partners in an ongoing effort to strengthen its regulation and supervision frameworks. These collaborative efforts continue to support the sound management of risks within OSFI’s environment which, in turn, contribute to a financial system that inspires confidence.
Actual spending across all programs increased by 20.8% between 2011-12 and 2013-14. During this period, resources were added to the Regulation and Supervision of Federally Regulated Financial Institutions program to address OSFI’s expanded mandate to include the oversight of Canada Mortgage and Housing Corporation’s (CMHC) commercial activities, increased work related to credit risk, and a revised approach to assessing operational risk. Increased spending within this program in 2014-15 and beyond is attributed to the full year impact of new resources added in 2013-14 and to normal merit and inflationary increases.
Spending in Internal Services increased by 25.5% in 2013-14, followed by a planned decrease of 15.7% in 2014-15. The increase in 2013-14 was driven by the curtailment of severance for unionized employees, the settlement of a pay equity claim dating from 1987 to 1997 that was previously provisioned for but paid out in 2013-14, costs associated with the implementation of OSFI’s Information Technology Renewal (ITR) initiative, and an increase in FTEs to support regulatory and supervisory initiatives. 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. Increased planned spending in 2015-16 reflects costs associated with a planned move of OSFI’s Toronto office when its lease expires in February 2016.
Spending within the Regulation and Supervision of Federally Regulated Private Pension Plans program has been decreasing since 2011-12 and returned to normal levels in 2013-14 with the completion of the development of a new system to enhance pension plan supervision.
Growth in the Actuarial Valuation and Advisory Services program is attributed to annual merit and inflationary increases as per the collective agreements, with an additional increase in 2013-14 for the triennial review of the Canada Pension Plan (CPP) program.
Total OSFI spending in 2013-14 was 7.5% greater than planned, largely due to the curtailment of severance for unionized employees and the settlement of the pay equity claim, as mentioned above, and a shift in the timing of retrofit initiatives in OSFI’s Ottawa and Toronto offices that carried forward from previous years.
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The 2012-13 fiscal year saw a growth in expenditures of 3.1%. This was 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 an increase in resources.
OSFI’s 2013-14 expenditures increased by an additional 17.2%, 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 ITR initiative, 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 initiative is to be completed in 2014-15, expenditures are expected to decrease by 5.3% in that year. They are planned to increase by 14.4% in 2015-16 and 2016-17 as leasehold improvements will be required for the planned relocation of OSFI's Toronto and Ottawa offices, when the leases expire. During the planning years, OSFI’s staff complement is expected to remain relatively stable and a priority will continue to be placed 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.
For information on OSFI’s organizational Votes and statutory expenditures, consult the Public Accounts of Canada 2014 on the Public Works and Government Services Canada website.Endnote iii
Represents actual in-year authorities available for use, and does not include an administrative carry-forward that appears on OSFI’s public accounts. The 2013-14 Total Authorities Available for Use is $38,599 higher than planned due to an increase in OSFI’s voted appropriation related to compensation adjustments as per the collective agreements
Return to Section I - footnote 1
The majority of OSFI’s expenditures are recovered via respendable revenue. In order to provide an accurate representation of OSFI’s spending, amounts shown reflect gross expenditures.
Return to Section I - footnote 2
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