Organizational Expenditure Overview

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Section I: Organizational Expenditure Overview

Organizational Profile

Appropriate Minister: Joe Oliver
Institutional Head: Jeremy Rudin
Ministerial Portfolio: Finance
Enabling Instrument(s): Office of the Superintendent of Financial Institutions Act (OSFI Act)
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). 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. Under the OSFI Act, the Superintendent is solely responsible for exercising OSFI’s authorities and is required to report to the Minister of Finance from time to time on the administration of the financial institutions legislation.

Responsibilities

OSFI’s mandate is to:

  • Supervise federally regulated financial institutions 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 have a negative impact on institutions.

From its mandate, OSFI has identified two strategic outcomes:
1.         A safe and sound Canadian financial system
2.         A financially sound and sustainable Canadian public retirement income system

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.

OSFI works with a number of key partners on the Financial Institutions Supervisory Committee (FISC), which the Superintendent chairs, including the Department of Finance, the Bank of Canada, Canada Deposit Insurance Corporation and the Financial Consumer Agency of Canada. Together, these organizations constitute Canada’s network of financial regulation and supervision, and provide a system of depositor and policyholder protection.

The Office of the Chief Actuary (OCA), which is an independent unit within OSFI, provides actuarial valuation and advisory services to the Government of Canada in the form of reports tabled in Parliament. While the Chief Actuary reports to the Superintendent, he is solely responsible for the content and actuarial opinions in reports prepared by the OCA. He is also solely responsible for the actuarial advice provided by the OCA to the relevant government departments, including the executive arm of provincial and territorial governments, which are co-stewards of the Canada Pension Plan (CPP).

Strategic Outcomes and Program Alignment Architecture (PAA)

  • 1. Strategic Outcome: 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: 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

Organizational Priorities

Priority TypeFootnote 1 Strategic Outcome(s) and/or program(s)
Anticipating and Responding to Risks Emanating from the Economy and Financial System Ongoing Strategic Outcomes One and Two
Summary of Progress

In 2014-15, the following steps were undertaken and successfully contributed to fostering a safe and sound Canadian financial system through the provision of guidance and strong oversight in targeted areas and by drawing from results of international financial sector reviews.

Steps Taken

  • Issued the final version of the Residential Mortgage Insurance Underwriting Practices and Procedures guideline.
  • Continued development of a new capital framework for mortgage insurers.
  • Conducted stress tests for the largest banks and life insurers that included the impact of high consumer debt and other adverse shocks.
  • Conducted supervisory reviews focused on cyber security self-assessments and outsourcing.
  • Responded to recommendations from the International Monetary Fund Financial Sector Assessment Program (FSAP) update for Canada as a way to further build on the overall strength of Canada’s financial system, as acknowledged in the FSAP.
Priority Type Strategic Outcome(s) and/or program(s)
Enhancing Supervisory Processes          Ongoing Strategic Outcome One
Summary of Progress

In 2014-15, the following steps were undertaken and successfully contributed to fostering a safe and sound Canadian financial system through OSFI’s continuing work towards enhancing its processes for supervisory activities.

Steps Taken

  • Embarked on a multi-year project to improve OSFI supervisory tools and technology, with Phase 1 completed and Phase 2 launched.
  • Conducted a pilot assessment of risk culture at a federally regulated financial institution (FRFI), with plans to develop and roll out an OSFI approach over time at large complex institutions.
  • Completed reviews of the internal audit function of a number of FRFIs (banks and insurance companies) in the context of their risk management practices.
Priority Type Strategic Outcome(s) and/or program(s)
Anticipating and Responding to Risks Emanating from Regulatory Reform Ongoing Strategic Outcomes One and Two
Summary of Progress

In 2014-15, the following steps were undertaken and successfully contributed to fostering a safe and sound Canadian financial system as well as a financially sound and sustainable Canadian public retirement income system through the provision of guidance and by drawing from and contributing to international financial sector forums.

Steps Taken

  • Issued new/revised guidelines, advisories or letters, including:
    • Liquidity Adequacy Requirements guideline
    • Leverage Requirements guideline
    • Minimum Continuing Capital and Surplus Requirements guideline
    • Minimum Capital Test guideline
    • Derivatives Sound Practices guideline
    • Changes to the Membership of the Board or Senior Management advisory
    • Early Adoption of International Financial Reporting Standards  9 Financial Instruments for Domestic Systemically Important Banks advisory
  • Issued a policy paper for the Life Insurance Capital Framework Standard Approach, as well as Quantitative Impact Study No. 6 on various aspects of the framework.
  • Participated actively on various international committees that develop regulatory frameworks for banks and insurers, including:
    • the Financial Stability Board;
    • the Basel Committee on Banking Supervision;
    • the International Association of Insurance Supervisors.
Priority Type Strategic Outcome(s) and/or program(s)
A High-Performing and Effective Workforce Ongoing Strategic Outcomes One and Two
Summary of Progress

In 2014-15, the following steps were undertaken and successfully 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

  • Initiated the development of a multi-year Supervision training program to support the needs of Supervision Sector employees.
  • Ensured change management work streams were built into all Information Management / Information Technology (IM/IT) projects. 
  • Continued enhancements to the corporate planning processes to further integrate Human Resources planning and Enterprise Risk Management processes.
  • Implemented targeted action plans where necessary to address areas identified for improvement in the 2013-1014 employee survey.
Priority Type Strategic Outcome(s) and/or program(s)
An Enhanced Corporate Infrastructure Ongoing Strategic Outcomes One and Two
Summary of Progress

In 2014-15, the following steps were undertaken and successfully 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

  • Completed the five-year Information Technology Renewal program, including implementation of:
    • an integrated Enterprise and Resource Planning module for Finance-related processes (SAP);
    • a Correspondence and Enquiry Management system for external inquiries;
    • a Regulatory Returns System (jointly with the Bank of Canada and Canada Deposit Insurance Corporation) for validation and processing of all regulatory return data;
    • an upgraded Business Intelligence solution to provide robust insurance industry data for analysis.
  • Continued to apply the Regulatory Data Governance Framework to approve and prioritize OSFI regulatory data requests.

Risk Analysis

The environment within which OSFI operates is constantly evolving and becoming more complex.  Uncertain economic and financial conditions create challenges for financial institutions and pension plan sponsors.  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 external risks, OSFI has also dedicated significant efforts to managing internal risks related to its human resources, systems and processes.  This is noteworthy given the important role that OSFI staff and supporting operations 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 the first two Priorities as described in the previous section on Organizational Priorities.

In 2014-15, OSFI paid particular attention to three 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 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 address potential threats 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 identified in the 2014-15 Report on Plans and Priorities (RPP).  Risk responses during 2014-15 included:
  • Undertaking a number of cross-sector reviews in a variety of key areas.

  • Meeting regularly with domestic partners to assess macroeconomic and financial system vulnerabilities and risks.

  • Participating in the development of international rules that contribute to a strong and stable global financial system.

  • Participating in international forums and facilitating domestic events to develop, discuss and implement best practices.

  • Issuing the Residential Mortgage Insurance Underwriting Practices and Procedures Guideline to support sound mortgage insurance underwriting and to guide interactions between mortgage insurers and mortgage lenders.

  • Continuing to develop guidance and a supervision training program in support of the Supervisory Framework, including the launch of a multi-year project aimed at improving supervisory tools.

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 One: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 past disruptions in global financial markets. The risk encompasses the downstream effects – intended and unintended – of the changes made.
This risk was identified in the 2014-15 RPP. Risk responses during 2014-15 included:
  • Undertaking the 6th Quantitative Impact Study to better assess the impact of possible changes to the Life Capital Framework to be implemented in 2018.

  • Furthering the development of revised parental stand-alone capital requirements for banks and insurance companies. 

  • Collaborating with the International Association of Insurance Supervisors in the area of global capital requirements and the supervision of internationally active insurers.

  • Issuing the Liquidity Adequacy Requirements Guideline and the Leverage Requirements Guideline to ensure that OSFI’s guidance is consistent with the Basel Committee on Banking Supervision Basel III requirements.

  • Releasing a more risk sensitive standardized approach to the minimum capital test for property and casualty insurers.

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, promote a more resilient global financial sector.

Also refer to performance information presented under the Program 1.1.

Strategic Outcome One: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.

This risk was identified in the 2014-15 RPP. Risk responses during 2014-15 included:
  • Issuing expectations with regard to the early adoption of the IFRS 9.

  • Issuing public disclosure requirements related to Basel III Leverage Ratio Guideline, the Liquidity Coverage Ratio Guideline, and the Basel III Pillar 3 composition of capital.

  • Working closely with major Canadian banks to ensure the implementation of the 32 Enhanced Disclosures Task Force recommendations on financial risk disclosures. This has resulted in substantial improvement to risk disclosures and virtually full compliance with the recommendations.

  • Issuing letters to the deposit-taking institutions, life insurers and property and casualty insurers on OSFI’s expectations with regard to the implementation of certain international and domestic external audit quality initiatives.

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 the adoption of amended accounting standards. 

Also refer to performance information presented under the Program 1.1.

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

Program 1.1: Regulation and Supervision of Federally Regulated Financial Institutions

During 2014-15, equity market volatility, elevated domestic household indebtedness, exceptionally low interest rates, and falling oil prices continued to be seen as sources of potential systemic vulnerability.  While financial institutions’ performance during this period was stable or improved slightly from the previous year, OSFI continued to monitor the global economy and assess the potential impact of various events on the risk profiles of FRFIs.  

Federally regulated private pension plans experienced a more challenging period in 2014-15 compared to the previous year, primarily due to further declines in long-term interest rates.  While this resulted in a slight deterioration in solvency positions for defined benefit pension plans, the impact on required solvency funding payments is expected to be moderated given that federal solvency funding requirements are based on a pension plan’s average solvency position over the past three years. For federally regulated defined benefit pension plans as a whole, the three-year average solvency ratio for the period ending December 2014 is slightly higher than it was for the period ending December 2013.

Throughout 2014-15, OSFI undertook a number of actions to strengthen its approach to financial regulation and supervision. OSFI continued to work 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 global regulation and supervision frameworks. These collaborative efforts continue to support the sound management of risks within OSFI’s environment which, in turn, promotes confidence in the financial system.

Actual Expenditures

Budgetary Financial Resources (dollars)

2014–15
Main Estimates
2014–15
Planned Spending
2014–15
Total Authorities
Available for UseFootnote 2
2014–15
Actual Spending
(authorities used)Footnote 3
Difference
(actual minus planned)
142,763,529 142,763,529 142,774,685 146,308,874 3,545,345

Human Resources (Full-Time Equivalents [FTEs])

2014–15
Planned
2014–15
Actual
2014–15
Difference
(actual minus planned)
669 687 18

Budgetary Performance Summary for Strategic Outcome(s) and Program(s) (dollars)

Strategic Outcome(s), Program(s) and
Internal Services
2014–15
Main Estimates
2014–15
Planned Spending
2015–16
Planned Spending
2016–17
Planned Spending
2014–15 Total Authorities Available for Use 2014–15
Actual Spending (authorities used)
2013–14
Actual Spending (authorities used)
2012–13
Actual Spending (authorities used)
Strategic Outcome 1: A safe and sound Canadian financial system.

Regulation and Supervision of Federally Regulated Financial Institutions

77,788,097 77,788,097 78,956,478 79,794,022 77,788,097 79,674,770 75,599,505 67,148,283
Regulation and Supervision of Federally Regulated Private Pension Plans 4,420,260 4,420,260 4,105,818 4,149,267 4,420,260 3,944,690 4,342,314 4,719,130
Subtotal 82,208,357 82,208,357 83,062,296 83,943,289 82,208,357 83,619,460 79,941,819 71,867,413
Strategic Outcome 2: A financially sound and sustainable Canadian public retirement income system.
Actuarial Valuation and Advisory Services 5,231,775 5,231,775 6,130,074 6,198,059 5,239,142 5,092,171 5,209,861 4,475,526
Subtotal 5,231,775 5,231,775 6,130,074 6,198,059 5,239,142 5,092,171 5,209,861 4,475,526
Internal Services Subtotal 55,323,397 55,323,397 58,741,742 73,145,748 55,327,186 57,597,243 65,650,453 52,296,952
Total 142,763,529 142,763,529 147,934,112 163,287,096 142,774,685 146,308,874 150,802,133 128,639,891

Total actual spending in 2014-15 increased by 13.7% from 2012-13. 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, a revised approach to assessing operational risk, and new work related to corporate governance. Spending in 2014-15 also included a one-time payment related to the Government of Canada’s (GoC) move to an employee compensation model of “pay in arrears”.

Spending in Internal Services decreased by 12.3% in 2014-15 from 2013-14 due to the completion of OSFI’s five-year Information Technology Renewal (ITR) program and the return to normal levels of investments in IM/IT to upgrade systems and renew core infrastructure and applications. The increase of 24.5% in planned spending in 2016-17 is in part due to relocation costs that had been planned for the Toronto office. At the time of writing, however, indications from Public Works and Government Services Canada suggest that the office will likely remain in its existing space. A reduction in OSFI’s 2016-17 planned spending as a result of avoiding a relocation will be reflected in the 2016-17 Report on Plans and Priorities.

Spending within the Regulation and Supervision of Federally Regulated Private Pension Plans program has decreased every year since 2012-13, when the development of a new system to enhance pension plan supervision was completed. Spending in 2014-15 was 9.2% lower than the previous year due to vacancies and non-recurring legal fees incurred in 2013-14.

Spending in the Actuarial Valuation and Advisory Services program decreased by 2.3% in 2014-15 compared to prior year due to the triennial Canada Pension Plan peer review that occurred in 2013-14.  Planned spending in 2015-16 onward is expected to increase due to staffing of vacant positions and new resources to address incremental work related to actuarial valuations.

Total actual spending in 2014-15 was 2.5% higher than planned, largely due to the one-time payment related to the GoC’s move to pay in arrears, the revised timelines to complete certain projects within OSFI’s ITR program, and an increase in FTEs in the Regulation and Supervision of Federally Regulated Financial Institutions program for the reasons noted above.

Alignment of Spending With the Whole-of-Government Framework

Alignment of 2014-15 Actual Spending With the Whole-of-Government Framework (dollars)

Strategic Outcome Program Spending Area Government of Canada Outcome 2014-15 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 79,674,770
  1.2 Regulation and Supervision of Federally Regulated Private Pension Plans Economic Affairs Income security and employment for Canadians 3,944,690
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 5,092,171

Total Spending by Spending Area (dollars)

Spending Area Total Planned Spending Total Actual Spending
Economic Affairs 87,440,132 88,711,631
Social Affairs 0 0
International Affairs 0 0
Government Affairs 0 0

Departmental Spending Trend

graph 

The 2013-14 fiscal year saw a growth in expenditures of 17.2%. This was primarily due to the payouts related 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.

OSFI’s 2014-15 expenditures decreased by 3.0%, largely due to the non-recurring costs in 2013-14 related to the aforementioned curtailment of severance and settlement of the pay equity claim.

OSFI’s overall spending is expected to be relatively stable in 2015-16, increasing primarily by normal merit and inflationary adjustments. Expenditures in 2016-17 are planned to increase by 10.4% due to the Toronto office relocation costs. However, as noted in the Budget Performance Summary section, a reduction in OSFI’s 2016-17 planned spending as a result of avoiding a relocation will be reflected in its 2016-17 Report on Plans and Priorities.

Over the planning years, OSFI’s staff complement is expected to remain relatively stable.

Estimates by Vote

For information on OSFI’s organizational voted and statutory expenditures, consult the Public Accounts of Canada 2015, which is available on the Public Works and Government Services Canada website.

Footnotes

Footnote 1

Type is defined as follows: previously committed to—committed to in the first or second fiscal year prior to the subject year of the report; ongoing—committed to at least three fiscal years prior to the subject year of the report; and new—newly committed to in the reporting year of the Report on Plans and Priorities or the Departmental Performance Report.

Return to footnote 1 referrer

Footnote 2

Represents actual in-year authorities available for use, and does not include an administrative carry-forward that appears on OSFI’s public accounts.

Return to footnote 2 referrer

Footnote 3

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 footnote 3 referrer

 

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