Office of the Superintendent of Financial Institutions
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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)
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.
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
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.
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
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.
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.
Accounting, Auditing and Information Disclosure Reforms:
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.
Continuous strengthening of internal systems, processes, and controls will enable OSFI to work more effectively and efficiently.
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:
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:
Measures that will be used to gauge the effectiveness of the above risk responses implemented in 2014-2015 include:
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:
Measures that will be used to gauge the effectiveness of the above risk responses implemented in 2014-15 include:
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.
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:
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:
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.
The financial resources table above provides a summary of the total planned spending for OSFI for the next three fiscal years.
The human resources table above provides a summary of the total planned full-time equivalent resources for OSFI for the next three fiscal years.
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.
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.
For information on OSFI’s organizational appropriations, please see the 2014-15 Main Estimates publication.
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.