Section I: Organizational Expenditure Overview

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Organizational Profile

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

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.

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.

Responsibilities

OSFI's legislated mandate is to:

  • Supervise federally regulated financial institutions 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 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.

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

The following tables present a summary of achievements against OSFI’s priorities in 2013-14.

Organizational Priorities
Priority Type Strategic Outcome(s) and/or program(s)
Priority A - Responding to Risks Emanating from the Economy Ongoing Strategic Outcome 1: A safe and sound Canadian financial system
Summary of Progress

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.

Steps Taken

  • Responded to concerns about low interest rates and high household indebtedness via enhanced monitoring, reviews of retail lending and stress testing.
  • Conducted significant cross-sector reviews in the areas of:
    • Cyber security and information technology operational risk
    • Retail credit cards
    • Corporate governance (retail risk)
    • Catastrophic risk
    • Reinsurance risk
  • Issued new/revised guidelines, advisories or letters on:
    • Residential Mortgage Insurance Underwriting (draft)
    • Liquidity Adequacy Requirements (draft)
    • Own Risk and Solvency Assessment, and Regulatory Capital and Internal Capital Targets
    • Minimum Continuing Capital and Surplus Requirements (MCCSR) update
    • Minimum Capital Test (MCT) update
  • Issued Cyber Security Self-Assessment Guidance to help federally regulated financial institutions (FRFIs) assess their own ability to respond to the rising operational risk.
  • Participated in the IMF’s FSAP update for Canada, which included macro stress tests that considered the impact of high consumer debt and other adverse shocks.
  • Continued to conduct:
    • Risk management seminars
    • Supervisory colleges
    • Crisis management and industry information sessions
  • Participated actively on various international committees, including:
    • Financial Stability Board (FSB)
    • Basel Committee on Banking Supervision (BCBS)
    • Senior Supervisors Group
    • International Association of Insurance Supervisors (IAIS)
Priority Type Strategic Outcome(s) and/or program(s)
Priority B - Responding to Risks Emanating from Regulatory Reform Ongoing Strategic Outcome 1: A safe and sound Canadian financial system
Summary of Progress

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.

Steps Taken

  • Released an update to the Life Insurance Regulatory Framework outlining OSFI initiatives through 2018.
  • Worked with IAIS to develop a global framework to guide the supervision of internationally active insurance groups (ComFrame) as well as a basic capital requirement for global systemically important insurers (G-SIIs).
  • Worked with banks and insurance companies to gather data and assess the impact of new capital requirements, and with banks on new liquidity requirements.
  • Took part in the Regulatory Consistency Assessment Programme (RCAP) of BCBS, which reviews national implementation of Basel minimum prudential standards, by completing a Canada RCAP assessment, leading the EU RCAP and participating in Australia, Switzerland and Singapore RCAPs.
  • Monitored International Accounting Standards Board and Financial Accounting Standards Board decisions as they impact the Canadian bank and insurance capital frameworks.
  • Provided comments on, or participated in, domestic audit quality initiatives of the Chartered Professional Accountants of Canada and the Canadian Public Accountability Board.
Priority Type Strategic Outcome(s) and/or program(s)
Priority C - A High-Performing and Effective Workforce Ongoing Strategic Outcome 1: A safe and sound Canadian financial system
Strategic Outcome 2: A financially sound and sustainable Canadian public retirement income system
Summary of Progress

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.

Steps Taken

  • Finalized the implementation of a new Human Resources service delivery model with appropriate policies, processes and controls.
  • Implemented organizational changes in the Supervision Sector to bring increased experience, knowledge and skills to the supervisory teams responsible for domestic systemically important banks.
  • Continued enhancements to the corporate planning processes to further integrate Human Resources (HR) planning and enterprise risk management processes.
  • Continued to ensure individual and group learning plans were driven by business need.
Priority Type Strategic Outcome(s) and/or program(s)
Priority D - An Enhanced Corporate Infrastructure Ongoing Strategic Outcome 1: A safe and sound Canadian financial system
Strategic Outcome 2: A financially sound and sustainable Canadian public retirement income system
Summary of Progress

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.

Steps Taken

  • Met all project milestones as part of OSFI’s Information Technology renewal program, including
    • Upgraded OSFI’s external website and Human Resources Management system.
    • Launched Phase 1 of a new system for returns processing (Regulatory Returns System) in partnership with the Bank of Canada and the Canada Deposit Insurance Corporation and an upgraded Business Intelligence solution for deposit-taking institutions.
    • Implemented an integrated enterprise resource planning software solution for finance-related processes.
    • Developed correspondence and inquiry management and document/records management/collaboration systems.
  • Implemented the Regulatory Data Governance Framework to ensure that OSFI effectively captures and shares FRFI information enterprise-wide.

Risk Analysis

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.

Key Risks
Risk Risk Response Strategy Link to Program Alignment Architecture

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 was identified in the 2013-14 RPP. 2013-14 risk responses included:
  • Heightened monitoring of the economic environment.
  • Undertaking a number of cross-sector reviews in a variety of key areas.
  • Continuing to develop supporting guidance for the Supervisory Framework and initiating a review of supervisory processes and tools.
  • Issuing guidance to help FRFIs self-assess their capability to respond to rising operational risk (e.g. cyber security risk).
  • Participating in the development of international rules that contribute to a strong and stable global financial system.
  • Participating in the IMF’s FSAP review of Canada.
  • Participating in international forums and facilitating domestic events to develop, discuss and implement best practices.

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:

  • Issuing a number of new/revised guidelines, advisories or letters on capital/liquidity requirements.
  • Communicating an update to the OSFI initiatives through 2018 for life insurers.
  • Collaborating with the IAIS in the area of global capital requirements and the supervision of internationally active insurers.
  • Working with FRFIs to assess the impact of new capital and liquidity requirements.
  • Taking part in an assessment of various countries’ national implementation of Basel minimum prudential standards.

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.

Strategic Outcome 1:A safe and sound Canadian financial system.

Program 1.1: Regulation and Supervision of Federally Regulated Financial Institutions

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.

This risk was identified in the 2013-14 RPP.
2013-14 risk responses included:

  • Considering changes to international accounting and auditing rules, assessing the impact on Canadian capital requirements, and providing comments where appropriate.

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.

Strategic Outcome 1:A safe and sound Canadian financial system.

Program 1.1: Regulation and Supervision of Federally Regulated Financial Institutions

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 Expenditures

Budgetary Financial Resources (dollars)
2013–14
Main Estimates
2013–14
Planned Spending
2013–14
Total Authorities
Available for UseFootnote 1
2013–14
Actual Spending
(authorities used)Footnote 2
Difference
(actual minus planned)
140,269,452 140,269,452 140,308,051 150,802,133 10,532,681
Human Resources (Full-Time Equivalents [FTEs])
2013–14
Planned
2013–14
Actual
2013–14
Difference
(actual minus planned)
641 666 25
Budgetary Performance Summary for Strategic Outcome(s) and Program(s) (dollars)
Strategic Outcome(s),
Program(s) and
Internal Services
2013–14
Main Estimates
2013–14
Planned Spending
2014–15
Planned Spending
2015–16
Planned Spending
2013–14 Total Authorities Available for Use 2013–14
Actual Spending (authorities used)
2012–13
Actual Spending (authorities used)
2011–12
Actual Spending (authorities used)
Strategic Outcome 1: A safe and sound Canadian financial system.
Regulation and Supervision of Federally Regulated Financial Institutions 73,994,821 73,994,821 77,788,097 79,909,307 73,994,821 75,599,505 67,148,283 62,789,318
Regulation and Supervision of Federally Regulated Private Pension Plans 4,552,176 4,552,176 4,420,260 4,601,001 4,552,176 4,342,314 4,719,130 5,529,297
Subtotal 78,546,997 78,546,997 82,208,357 84,510,308 78,546,997 79,941,819 71,867,413 68,318,615
Strategic Outcome 2: A financially sound and sustainable Canadian public retirement income system.
Actuarial Valuation and Advisory Services 5,203,501 5,203,501 5,231,775 5,423,820 5,239,190 5,209,861 4,475,526 4,179,762
Subtotal 5,203,501 5,203,501 5,231,775 5,423,820 5,239,190 5,209,861 4,475,526 4,179,762
Internal Services Subtotal 56,518,954 56,518,954 55,323,397 73,368,020 56,521,864 65,650,453 52,296,952 52,324,681
Total 140,269,452 140,269,452 142,763,529 163,302,148 140,308,051 150,802,133 128,639,891 124,823,058

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.

Alignment of Spending With the Whole-of-Government Framework

Alignment of 2013-14 Actual Spending With the Whole-of-Government FrameworkEndnote ii (dollars)
Strategic Outcome Program Spending Area Government of
Canada Outcome
2013-14
Actual Spending
1. A safe and sound Canadian financial system. 1.1 Regulation and Supervision of Federally Regulated Financial Institutions Economic Affairs Strong economic growth 75,599,505
1.2 Regulation and Supervision of Federally Regulated Private Pension Plans Economic Affairs Income security and employment for Canadians 4,342,314
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 5,209,861
Total Spending by Spending Area (dollars)
Spending Area Total Planned Spending Total Actual Spending
Economic Affairs 83,750,498 85,151,680
Social Affairs 0 0
International Affairs 0 0
Government Affairs 0 0

Departmental Spending Trend

Departmental Spending Trend Graph 

[ text version ]

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.

Estimates by Vote

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​​

Footnotes

Section I - Footnote 1

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

Section I - Footnote 2

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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