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SECTION II: ANALYSIS OF PROGRAM ACTIVITIES BY STRATEGIC OUTCOME

II.1 Strategic Outcomes

Primary to OSFI's mission and central to its contribution to Canada's financial system are two strategic outcomes:

  • To regulate and supervise to contribute to public confidence in Canada's financial system and safeguard from undue loss. OSFI safeguards depositors, policyholders and private pension plan members by enhancing the safety and soundness of federally regulated financial institutions and private pension plans.
  • To contribute to public confidence in Canada's public retirement income system. This is achieved through the activities of the Office of the Chief Actuary, which provides accurate, timely advice on the state of various public pension plans and on the financial implications of options being considered by policy makers.

 

II.2 Program Activities

Three program activities support OSFI's first strategic outcome to regulate and supervise financial institutions and private pension plans so as to contribute to public confidence. 

  1. Regulation and supervision of federally regulated financial institutions (FRFIs)
    This program activity is central to the achievement of OSFI's mandate to protect the rights and interests of depositors and policyholders and advance a regulatory framework that contributes to public confidence in the Canadian financial system.  The three sub-activities of this program are:
    • Risk assessment and intervention includes activities to monitor and supervise financial institutions, monitor the financial and economic environment to identify emerging issues and intervene in a timely way to protect depositors and policyholders, while recognizing that all failures cannot be prevented.
    • Rule making encompasses the issuance of guidance and regulations, input into federal legislation affecting financial institutions, contributions to accounting, auditing and actuarial standards, and involvement in a number of international rule-making activities.
    • Approvals of certain types of actions or transactions undertaken by regulated financial institutions. This covers two distinct types of approvals: those required under the legislation applying to financial institutions and approvals for supervisory purposes.

    There is a strong interrelationship among the three parts of this supervisory and regulatory program. The supervisory function relies on an appropriate framework of rules and guidance. In some situations, regulatory approval is required because a proposed transaction may significantly affect an institution's risk profile. Approving such a change involves both a supervisory and regulatory assessment. Supervisory experiences often identify areas where new or amended rules are needed.

    As identified in OSFI’s mandate, OSFI must also recognize the need for financial institutions to compete effectively. The sustainability and success of regulated institutions is important for the long-term safety and soundness of the financial system. As a result, OSFI needs to strike an appropriate balance between promoting prudence and allowing financial institutions to take reasonable risks in order to compete and prosper.

  2. Regulation and supervision of federally regulated private pension plans
    This program incorporates risk assessment, intervention, rule making and approvals related to federally regulated private pension plans under the Pension Benefits Standards Act, 1985.
  3. International Assistance
    OSFI supports initiatives of the Government of Canada to assist emerging market economies to strengthen their regulatory and supervisory systems. This program incorporates activities related to providing help to selected countries that are building their supervisory and regulatory capacity. This program is largely funded by the Canadian International Development Agency and is carried out by OSFI directly and through its participation in the Toronto International Leadership Centre for Financial Sector Supervision. This involvement strengthens the financial system regulatory and supervisory regimes in those jurisdictions.


    A fourth program activity, the Office of the Chief Actuary, supports OSFI’s second strategic outcome: to contribute to public confidence in Canada’s public retirement income system.


  4. Office of the Chief Actuary (OCA)
    The OCA provides a range of actuarial services, under legislation, to the Canada Pension Plan (CPP) and some federal government departments, including the provision of expert and timely advice in the form of reports tabled in Parliament. The basic elements of this program include:
    • Canada Pension Plan and Old Age Security: The OCA estimates long-term expenditures, revenues and current liabilities of the CPP and long-term future expenditures for Old Age Security programs. The OCA also prepares statutory triennial actuarial reports on the financial status of these programs.
    • Other Public Sector Pension Plans: The OCA prepares statutory triennial actuarial reports on the financial status of federal public sector employee pension and insurance plans covering the federal Public Service, the Canadian Armed Forces, the Royal Canadian Mounted Police, the federally appointed judges and Members of Parliament.

    Since 2001, the OCA also undertakes the actuarial review of the Canada Student Loans Program by evaluating the portfolio of loans and the long-term program costs.

 

II.3 Monitoring Mechanisms and Performance

OSFI uses various types of performance measures, including industry surveys, peer reviews and internal indicators. For each priority, the reporting is based on the types of monitoring mechanisms used.

Since 1998, OSFI has engaged in a process of periodic, anonymous, independent consultations with industry stakeholders. Generally these are comprised of senior executives and professionals representing the stakeholder group, and are subsequently referred to as “knowledgeable observers”. This provides OSFI with an indication of its performance in program areas, including whether it is providing the guidance and direction necessary to stakeholders.

OSFI's mandate explicitly provides that closures and terminations of the financial institutions it regulates can occur and are not by themselves an indication of OSFI's performance. In considering those that do occur, OSFI assesses how it performed relative to its early intervention mandate in identifying the situation and intervening appropriately.

It should be recognized that OSFI's performance does not constitute the only influence on its strategic outcomes. Indeed, OSFI's legislation recognizes that there are many other factors and stakeholders whose actions or inactions have a large impact on the strategic outcomes. OSFI monitors the external environment to help ensure it has a clear understanding of the influences on its key strategic outcomes and to gain additional insights into the ways by which OSFI itself can continue to contribute to those outcomes.

In 2007-2008, OSFI enhanced its performance measurement framework and performance measures for external reporting to Parliament, Treasury Board and other stakeholders. This framework, comprising measures, indicators, targets and reporting cycles, meets the requirements of the Treasury Board's Management Resources and Results Structure (MRRS) Policy and was embedded into OSFI's 2008-2009 Report on Plans and Priorities. OSFI is implementing, where feasible and appropriate, reporting based on the updated measures from the enhanced framework in this 2007-2008 Departmental Performance Report.  

In some cases, data collection against prior measures was discontinued in order to implement OSFI's enhanced measures. In other cases, new measures were developed to support new priorities. Performance measures that are included for the first time in this report are identified as “NEW”. 

 

II.4 Detailed Analysis of Performance

The diagram below illustrates the link between OSFI's priorities and its Program Activity Architecture.

 

OSFI's priorities and its Program Activity Architecture

In addition to the above Program Priorities, OSFI has Program Support Priorities which are discussed in Section IV.3.

The following tables provide an assessment of OSFI's performance for the year against its Program Priorities and Management Priorities.

 

PRIORITY 1


Strategic Outcome: Regulate and Supervise to Contribute to Public Confidence in
Canada's Financial System and Safeguard from Undue Loss
Program Activity: Regulation and Supervision of Federally Regulated Financial Institutions
Program Sub-Activity: Risk Assessment and Intervention
Priority 1: Accurate risk assessments of financial institutions and timely, effective intervention and feedback. (Ongoing)
Description
Monitor and supervise financial institutions; monitor the financial and economic environment to identify emerging issues and risks. Intervene in a timely manner to protect depositors and policyholders while recognizing that OSFI cannot eliminate the possibility of failures.
Key Expected Results
  • OSFI uses a modern supervisory process that leads to an accurate overall assessment of the risk profile and control functions of the financial institutions it regulates and supervises.
  • In exercising its early intervention mandate, OSFI is proactive in intervening in problem cases regarding the financial institutions it regulates and supervises.
  • Risk assessments and management reports are timely and clear.
  • Intervention action is commensurate to the seriousness of the problem/issue at hand.
Key Performance Measures / Achieved Results
  1. NEW Estimated recoveries on failed institutions.3 Source: Canada Deposit Insurance Corporation, Agents, Liquidators
    • For the 12 months ended June 30, 2007, the total weighted average recoveries on institutions that failed in prior periods were $0.98 on each dollar.

  2. NEW Percentage of knowledgeable observers who rate the clarity of OSFI's written correspondence (e.g., Management Reports or Supervisory Letters) outlining issues of concern as good or very good. Source:Report on Financial Institutions Survey 2008.4
    • 83% of financial institution CEOs rate the clarity of OSFI's written correspondence (e.g., Management Reports or Supervisory Letters) outlining issues of concern as good or very good.

  3. NEW Percentage of knowledgeable observers who believe that their institution's Composite Risk Rating is appropriate. Source: Report on Financial Institutions Survey 2008
    • 87% of financial institution CEOs believe that their institution's Composite Risk Rating is appropriate.

Ratings

2007-08 – Successfully met
2006-07 – N/A
2005-06 – N/A


2007-08 – Successfully met
2006-07 – N/A
2005-06 – N/A

 


2007-08 –
Successfully met
2006-07 – N/A
2005-06 – N/A
Performance Discussion

Steps taken during the year in support of this objective include:

  • Intervened with a number of institutions to improve risk management and governance practices and to enhance safety and soundness.
  • Continued to maintain up-to-date risk profiles of all federally regulated financial institutions. Assigned a low or moderate Composite Risk Rating (CRR) to 94% of all rated institutions as at March 31, 2008, and rated 6% (25 financial institutions) as above average or high risk (compared to 95% and 5% in 2006-2007).
Steps planned for the future to improve performance include:
  • In the coming year, OSFI anticipates doing comparative reviews of industry practices in the banking sector in the following four areas: securitization, liquidity management, stress testing of the credit book, and valuation of illiquid products. 
  • Conduct a review in the life insurance sector related to commercial real estate, and a review in the banking sector related to US commercial real estate.

Financial Resources ($ millions)
Planned Authorities Actual
$53.5 $53.5 $51.4

Human Resources (average Full-Time Equivalents, including Internal Services)
Planned Actual Difference
246 247 (1)


 

PRIORITY A


Strategic Outcome: Regulate and Supervise to Contribute to Public Confidence in
Canada's Financial System and Safeguard from Undue Loss
Program Activity: Regulation and Supervision of Federally Regulated Financial Institutions
Program Sub-Activity: Risk Assessment and Intervention
Priority A: Readiness Planning (New)
Description
  • Enhance OSFI's ability to respond to shocks to the economy as a result of a crisis or pandemic.
  • Improve readiness to respond to cyclicality in the industry, e.g. a possible economic downturn.
Key Expected Results
  • Up-to-date Business Continuity Plan is in place to ensure that OSFI can continue to execute it's mandate in the event of an emergency situation such as a pandemic.
  • OSFI is positioned to identify and respond effectively to a possible economic downturn.
Key Performance Measures / Achieved Results
  1. NEW OSFI has a current Business Continuity Plan that addresses a range of scenarios including pandemic planning.
    • Updated OSFI's Business Continuity Plan, added a pandemic scenario, and validated through a table-top exercise.

  2. NEW Appropriate supervisory resources are allocated to enable OSFI to monitor and address impact of cyclicality in the industry.
    • Completed resource analysis and planning, and budgeted for an increase of approximately 10% in supervisory resources in 2008-2009 to enable OSFI to address the growing risk profiles across the industries it regulates.

Ratings

2007-08 –
Successfully met
2006-07 – N/A
2005-06 – N/A


2007-08 –
Successfully met
2006-07 – N/A
2005-06 – N/A
Performance Discussion
Steps taken during the year in support of this objective include:
  • Conducted a table-top exercise with OSFI senior executives and the Business Continuity Planning Team to test their command and control structure while relocated to a simulated backup Emergency Command Centre.
  • Conducted a table-top exercise to test OSFI's Information Technology disaster recovery plan.
  • Surveyed business resumption plans, including pandemic preparedness, of federally regulated financial institutions.
  • Emphasized the stress testing capabilities of larger institutions.
  • Enhanced monitoring efforts to support earlier identification and response to emerging risks.
  • Implemented an Emerging Risk Committee to enhance early identification and tracking of environmental or industry developments or events that might impact, or indicate a future hazard for, federally regulated financial institutions.

Steps planned for the future to improve performance include:

  • This priority is short-term and was addressed in the reporting period. Any future activities will be incorporated into ongoing operations.
Financial Resources and Human Resources: Included in Priority 1

 

PRIORITY B


Strategic Outcome: Regulate and Supervise to Contribute to Public Confidence in
Canada's Financial System and Safeguard from Undue Loss
Program Activity: Regulation and Supervision of Federally Regulated Financial Institutions
Program Sub-Activity: Risk Assessment and Intervention
Priority B: Basel II: Implementation Phase (Previously committed)
Description
The implementation of the Basel II Capital Accord in Canada is a multi-year initiative. In 2007-2008 the objective of the program was to:
  • complete the review and approval, with a reasonably high degree of confidence, of the applications that are submitted for approval under the Basel II Capital Accord;
  • support the industry in implementing Basel II requirements; and
  • review OSFI guidelines and practices to ensure that they align with Basel II requirements.
Key Expected Results
  • OSFI's supervisory framework remains contemporary and assists OSFI in being able to detect prudential issues on a timely basis.
  • Applications received are reviewed for approval prior to the Accord implementation date.
  • OSFI effectively supports and facilitates institutions' transition to the Basel II framework.
  • Regulatory and supervisory practices are updated to address Basel II requirements for supervisors.
Key Performance Measures / Achieved Results
  1. NEW Completed the review and approval (or otherwise) of applications that were submitted for approval under the Basel II capital framework.
    • Granted approval to various banks to operate under the Advanced Internal Ratings Based approach within the current reporting timeframe.

  2. Industry stakeholders are of the view that OSFI uses a high quality process for implementing Basel II.
    • Early in 2008, Canada participated in a joint World Bank-International Monetary Fund pilot review of the implementation of the Basel II Capital Adequacy Framework. Preliminary feedback suggests that Canada has succeeded in a high-quality and collaborative implementation of the Basel II Capital Adequacy Framework. The final report is expected to be released in 2008-2009.

  3. NEW Guidelines and practices are updated to comply with Basel II requirements.
    • Made revisions to, and issued advisories related to, the Capital Adequacy Requirements (CAR) Guidelines for banks, trust and loan companies on the implementation of the new Basel II capital framework, in order to incorporate a number of issues raised by the industry.

  4. Development / integration of supervisory processes to support Pillar I approval and augment the risk matrix.
    • Developed and incorporated internal processes linking institutions’ Basel II implementation, methodologies and processes to the risk matrix.

Ratings

2007-08 –Successfully met
2006-07 – N/A
2005-06 – N/A

2007-08 –
Successfully met
2006-07 – Successfully met
2005-06 – N/A




2007-08 –
Successfully met
2006-07 – N/A
2005-06 – N/A



2007-08 –
Successfully met
2006-07 – Successfully met
2005-06 – N/A

Performance Discussion

Steps taken during the year in support of this objective include

  • Undertook a comprehensive review and assessment of applications to operate under the Advanced Internal Ratings Based (AIRB) approach under Basel II that were received during this reporting period. Decisions were based on the review and assessment of information submitted and actions taken to meet the principles, requirements, and steps for the approval of the AIRB Approach as detailed in OSFI's Implementation Note A-1-2007-2008 Approval of IRB Approaches for Institutions. Information obtained in meetings and discussions with management was also considered.
  • Assisted smaller deposit-taking institutions to transition successfully to the Standardized Approach for credit risk.
  • Considered clarifications raised by the industry through the Canadian Bankers Association and financial institution specific discussions in order to update the CAR Guidelines and issue advisories. 

Steps planned for the future to improve performance include:

The Basel II program has now moved into the post-implementation phase. Work in the next year will focus on:

  • Monitoring the performance of recently implemented Basel II systems.
  • Continuing validation work for Pillar 1 credit risk.
  • Performing reviews of the banks’ internal capital adequacy assessment processes.
  • Reviewing the target capital policy for risk ratios and floors based on Basel II experience.
Financial Resources and Human Resources: Included in Priority 1

 

PRIORITY C


Strategic Outcome: Regulate and Supervise to Contribute to Public Confidence in
Canada's Financial System and Safeguard from Undue Loss
Program Activity: Regulation and Supervision of Federally Regulated Financial Institutions
Program Sub-Activity: Risk Assessment and Intervention
Priority C: Financial Sector Assessment Program (FSAP) Update / Financial Action Task Force (FATF) (New)
Description
Participate in FSAP Update and FATF review and be in a position to deal with any feedback that results from the reviews.
Key Expected Results
OSFI will receive an independent view as to whether it develops, maintains and contributes to a regulatory framework that meets or exceeds international minimums.
Key Performance Measures / Achieved Results
  1. NEW OSFI's objective is to receive a successful assessment on the FSAP Update and the FATF review.
    • The International Monetary Fund's FSAP Update report on Canada found OSFI to be compliant with all four core principles assessed and noted that the Canadian financial sector is strong and its major banks would be able to withstand sizeable shocks to the financial system.
    • The FATF mutual evaluation report (MER) recognized OSFI's role in Canada's anti-money laundering/anti-terrorism financing (AML/ATF) regime as being effective, and noted that regulatory changes scheduled to take effect in December 2007 and June 2008 would address most issues of Canada's non-compliance with the FATF standards.
Ratings

2007-08 –
Successfully met
2006-07 – N/A
2005-06 – N/A

Performance Discussion

Steps taken during the year in support of this objective include:

FSAP
  • Provided the International Monetary Fund (IMF) with detailed self-assessments regarding compliance with four recently revised core principles on Liquidity Risk, Operational Risk, Interest Rate Risk in the Banking Book and Supervisory Techniques.
  • Worked with the Bank of Canada and the major banks to undertake stress testing under a number of scenarios
FATF
  • Provided extensive input, with a number of other stakeholders, to the mutual evaluation questionnaire, which is a key input into the FATF's MER.
  • Amended OSFI’s AML/ATF assessment methodology to take into account the new legislative requirements.
Steps planned for the future to improve performance include:
  • Guideline B-8 on Deterring and Detecting Money Laundering and Terrorist Financing will be revised to reflect a number of legislative and regulatory amendments.
  • This priority is short-term and was addressed in the reporting period. Future activities will be incorporated into ongoing operations.
Financial Resources and Human Resources: Included in Priority 1

 

PRIORITY 2


Strategic Outcome: Regulate and Supervise to Contribute to Public Confidence in
Canada's Financial System and Safeguard from Undue Loss
Program Activity: Regulation and Supervision of Federally Regulated Financial Institutions
Program Sub-Activity: Rule Making
Priority 2: A balanced, relevant regulatory framework of guidance and rules for financial institutions that meets or exceeds international minimums. (Ongoing)
Description
Issuance of guidance and input into federal legislation and regulations affecting financial institutions. Contribute a regulatory perspective to accounting, auditing and actuarial standards as required. Contribute to the development of international prudential rule-making.
Key Expected Results
  • In developing, maintaining and contributing to a regulatory framework that meets or exceeds international minimums, OSFI strikes an appropriate balance between safety and soundness and the need for institutions to compete.
  • Guidelines, Advisories and other guidance developed and issued to industry by OSFI reflect timely, clear and relevant information.
  • Competitive, prudent capital rules and regulatory reporting for Canadian Federally Regulated Financial Institutions consistent with economic realities, Basel rules and IAIS guidance for recognizing capital instruments, and significant foreign markets.
Key Performance Measures / Achieved Results
  1. Percentage of knowledgeable observers who rate OSFI as good or very good at developing regulations, guidelines and other rules that strike an appropriate balance between prudential considerations and the need for institutions to compete. Source: Report on Financial Institutions Survey 20085
    • 63% of financial institution CEOs rate OSFI as good or very good at developing regulations and guidance that strike an appropriate balance between prudential considerations and the need for institutions to compete.

  2. NEW Percentage of knowledgeable observers who rate OSFI as good or very good at developing regulations, guidelines and other rules for industry that are clear and easy to understand. Source: Report on Financial Institutions Survey 2008
    • 61% of financial institution CEOs rate OSFI as good or very good at developing regulations and guidance that are clear and easy to understand.

  3. NEW Percentage of knowledgeable observers who rate OSFI as good or very good at consulting with industry on the development of regulations, guidelines and other rules. Source: Report on Financial Institutions Survey 2008
    • 77% of financial institution CEOs rate OSFI as good or very good at consulting with the financial services industry when developing regulations and guidance.

Ratings

2007-08 –
Successfully met
2006-07 – Successfully met6
2005-06 – N/A

 

2007-08 –
Successfully met
2006-07 – N/A
2005-06 – N/A

 

2007-08 –
Successfully met
2006-07 – N/A
2005-06 – N/A
Performance Discussion

Steps taken during the year in support of this objective include:

  • OSFI issued the final version of the Capital Adequacy Requirements and related reporting forms for banks and trust and loan companies, which ensures Canada is aligned with the standards developed by the Bank for International Settlements (BIS) Basel Committee on Banking Supervision.
  • The Minimum Continuing Capital and Surplus Requirements for life insurers was updated, largely to address issues related to assets replicated synthetically and with derivatives.
  • OSFI issued a number of capital advisories designed to clarify particular aspects of OSFI's capital guidance.
  • In the area of corporate governance, OSFI issued a guideline on Background Checks for Directors and Senior Management of Federally Regulated Enterprises, which aligns Canada with the expectations of internationally accepted regulatory practice. 
  • Worked with Basel Committee on Banking Supervision to identify issues arising from the current credit environment and the steps needed to strengthen the resilience of the banking system.
Steps planned for the future to improve performance include:
  • OSFI will be issuing a revised version of its Guideline E-6 on Materiality Criteria that will reflect changes to related party rules found in the legislation governing federally regulated financial institutions. The guideline will also consolidate and harmonize the three FRFI sector guidelines to ensure a level playing field for all FRFIs.

Financial Resources ($ millions)
Planned Authorities Actual
$14.7 $14.7 $14.2

Human Resources (average Full-Time Equivalents, including Internal Services)
Planned Actual Difference
98 86 12


 

PRIORITY D


Strategic Outcome: Regulate and Supervise to Contribute to Public Confidence in
Canada's Financial System and Safeguard from Undue Loss
Program Activity: Regulation and Supervision of Federally Regulated Financial Institutions
Program Sub-Activity: Rule Making
Priority D: Accounting Standards: Implement move from Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards (IFRS)  (Previously committed)
Description
Implement the move from Canadian Generally Accepted Accounting Principles to International Financial Reporting Standards by addressing changes to OSFI's prudential regime, including consideration of changes in accounting for insurance. This is a multi-year priority with full implementation expected to be completed by 2011.
Key Expected Results
  • OSFI is able to handle revised accounting and reporting changes, and maintain its strategy of using audited financial statement amounts as the starting point for regulatory purposes.
  • OSFI's position is articulated and considered by Canadian and international committees.
Key Performance Measures / Achieved Results
  1. Through the identification and communication of well articulated positions, OSFI's prudential issues are considered by Canadian and international committees.  OSFI succeeds in having high priority Canadian issues dealt with appropriately.
    • Collaborated with the Canadian Institute of Chartered Accountants’ Accounting Standards Board (AcSB), the Auditing and Assurance Standards Board, the Accounting Task Force (ATF) of the Basel Committee on Banking Supervision, and the International Association of Insurance Supervisors' (IAIS) Insurance Contracts Subcommittee.

  2. Revised capital and/or accounting guidelines are drafted and issued on a timely basis.
    • No revisions were required during 2007-2008. Planning is underway for industry consultations in 2008-2009.

Ratings

2007-08 –
Successfully met
2006-07 –
Successfully met
2005-06 – N/A

 

 

2007-08 – N/A
2006-07 –
Successfully met
2005-06 – N/A
Performance Discussion

Steps taken during the year in support of this objective include:

  • Identified the key differences between Canadian GAAP and IFRS in order to work towards assessing the effects that moving to IFRS will have on FRFIs and the need for new or modified guidance from OSFI.
  • Worked closely with the Canadian Institute of Chartered Accountants’ Accounting Standards Board (AcSB) staff and participated in bilateral discussions with AcSB staff on issues related to the adoption of IFRS.
  • As part of the Accounting Task Force (ATF) of the Basel Committee on Banking Supervision, provided comment letters to the International Accounting Standards Board (IASB) on key discussion papers.
  • Through participation on the International Association of Insurance Supervisors' (IAIS) Insurance Contracts Subcommittee, worked on a response to the IASB Discussion Paper on Insurance Contracts, as well as submitting an independent response.
  • Engaged in discussions with the life insurance industry on how to update the current approach to measuring life insurance regulatory capital requirements for the new IFRS that cause material changes to balance sheet items used in the measurement of risks captured in the requirements.
Steps planned for the future to improve performance include:
  • Beginning in 2008-2009, OSFI will conduct extensive consultations regarding the effects the adoption of IFRS will have on OSFI as well as on federally regulated financial institutions. The consultations will form the basis for decisions as to the need for changes in OSFI guidance, reporting requirements as well as any potential changes to legislation or regulations.
  • OSFI will continue to review, and modify where appropriate, its existing guidance in light of the changes that are being brought about by the adoption of IFRS.
Financial Resources and Human Resources: Included in Priority 2

 

PRIORITY E


Strategic Outcome: Regulate and Supervise to Contribute to Public Confidence in
Canada's Financial System and Safeguard from Undue Loss
Program Activity: Regulation and Supervision of Federally Regulated Financial Institutions
Program Sub-Activity: Rule Making
Priority E: Minimum Continuing Capital Surplus Requirements (MCCSR) (New)
Description
Develop and agree on a capital framework for life insurance companies. This is a multi-year priority with staged implementation expected to begin in 2011.
Key Expected Results
  • MCCSR guideline appropriately addresses risks faced by the life insurance industry and provides a sufficient level of capital for the protection of policyholders as per OSFI's mandate.
  • Processes and systems are in place to accommodate changes resulting from MCCSR.
Key Performance Measures / Achieved Results
  1. NEW Appropriate capital guidelines are developed, taking account of risks.
    • Worked with the life insurance industry through the MCCSR Advisory Committee (MAC) to develop proposals for more advanced risk measurement techniques into the MCCSR.

  2. NEW Internal processes and systems are updated to accommodate changes resulting from MCCSR and accounting changes in agreed-upon timelines.
    • Discussions about process and system updates took place during the year.  Material modifications are expected to start in 2009.

Ratings

2007-08 –
Successfully met
2006-07 – N/A
2005-06 – N/A

2007-08 –
Successfully met
2006-07 – N/A
2005-06 – N/A

Performance Discussion

Steps taken during the year in support of this objective include:

  • Through the MAC, OSFI issued two papers, one outlining the vision for a new more risk-sensitive solvency framework for life insurers and the other a draft for discussion outlining proposals for a standard approach for establishing the level of capital a life insurer should maintain.
Steps planned for the future to improve performance include:
  • OSFI will continue to work with various stakeholders (other Canadian regulators, industry, MAC) to develop more specific aspects of the solvency framework, including specific risk categories. Work will also be undertaken to ensure that the new framework conforms to the new accounting for insurance contracts under the IFRS.
Financial Resources and Human Resources: Included in Priority 2

 

PRIORITY 3


Strategic Outcome: Regulate and Supervise to Contribute to Public Confidence in
Canada's Financial System and Safeguard from Undue Loss
Program Activity: Regulation and Supervision of Federally Regulated Financial Institutions
Program Sub-Activity: Approvals
Priority 3: A prudentially effective, balanced and responsive approvals process. (Ongoing)
Description
Approvals include those required under the legislation applicable to financial institutions and other approvals for supervisory purposes.
Key Expected Results
  • OSFI's regulatory approvals result in prudentially sound decisions that are timely, clear and transparent.
  • Decisions for legislative approvals and non-legislative approvals are completed within specified time limits.
Key Performance Measures / Achieved Results
  1. NEW Percentage of knowledgeable observers who understand somewhat or very well the basis upon which OSFI makes its decisions as part of the approval process. Source: Report on Financial Institutions Survey 20087
    • 82% of financial institution CEOs understand somewhat or very well the basis upon which OSFI makes applications decisions.

  2. Percentage of completed applications for legislative approvals that are processed within established performance standards.
    • 98% of completed deemed approvals filed were decided upon within communicated time limits8. All other performance standards established under the User Fee Act and the Policy on Service Standards for External Fees were met in the year under review.

Ratings

2007-08 –
Successfully met
2006-07 – N/A
2005-06 – N/A


2007-08 – Exceeded expectations
2006-07 – Exceeded expectations
2005-06 – Exceeded expectations

Performance Discussion

Steps taken during the year in support of this objective include:

  • Processed 651 approvals related to 278 applications including approvals relating to the establishment of 15 new federal financial institutions either as new incorporations, continuances from other jurisdictions or Canadian branches of foreign institutions.
  • Processed 54 non-deemed approvals of deposit and trust agreements and letters of credit.
  • Continued to assess foreign regulators and country risks for those new entry applicants from unfamiliar jurisdictions.
  • Developed and published on OSFI's web site five rulings and two advisories, one relating to insurance in Canada of risks and the other relating to control in fact
  • Considerable time was spent dealing with issues relating to the legislated self dealing regime applicable to FRFIs as well as Part XII of the Bank Act and Part XIII of the Insurance Companies Act.
  • Provided 44 advance capital confirmations on the eligibility of proposed capital instruments.
  • Hosted a Legislation and Approvals Seminar for industry, focused on issues related to OSFI's approvals process; feedback was very positive.
Steps planned for the future to improve performance include:
  • Enhance the transparency of OSFI's statutory approvals process and promote a better understanding of OSFI's interpretation of the federal financial institution statutes by publishing new rulings, advisories and transaction instructions that set out interpretations of the financial institution legislation primarily in respect of issues linked to applications for regulatory approval.
  • Review and amend transaction instructions and advisories to reflect latest legislative changes.
  • Enhance approval processes in line with management response to internal audit recommendations.

Financial Resources ($ millions)
Planned Authorities Actual
$7.7 $7.7 $7.2

Human Resources (average Full-Time Equivalents, including Internal Services)
Planned Actual Difference
36 41 (5)


 

PRIORITY 4


Strategic Outcome: Regulate and Supervise to Contribute to Public Confidence in
Canada's Financial System and Safeguard from Undue Loss
Program Activity: Regulation and Supervision of Federally Regulated Private Pension Plans
Program Sub-Activity: Activities related to the Regulation and Supervision of Federally Regulated Private Pension Plans
Priority 4: Accurate risk assessments of pension plans, timely and effective intervention and feedback, a balanced, relevant regulatory framework, and a prudentially effective and responsive approvals process. (Ongoing)
Description
Incorporates risk assessment, intervention, rule making and approvals related to federally regulated private pension plans under the Pension Benefits Standards Act, 1985.
Key Expected Results
  • OSFI uses a modern supervisory process that leads to an accurate overall assessment of the risk profile of the pension plans that it regulates.
  • In exercising its early intervention mandate, OSFI is proactive in intervening in problem plans that it regulates.
  • Risk assessments and management reports are timely and clear.
  • Intervention action is commensurate to the seriousness of the problem/issue at hand.
Key Performance Measures / Achieved Results
  1. NEW Recovery on pension plans that have terminated under-funded9. Source: Internal Statistics
    • In the last fiscal year, three pension plans terminated in an under-funded position. All three have made commitments to fully fund the deficit and thus provide plan beneficiaries with 100% of their promised benefit.

    NOTE: Measures 2, 3 and 4 were not assessed in the year under review.

  2. NEW Percentage of knowledgeable observers who rate OSFI as good or very good at developing guidance that is clear and understandable.
  3. NEW Percentage of knowledgeable observers who rate OSFI as good or very good at developing guidance that strikes an appropriate balance between the interests of plan sponsors and plan members.
  4. NEW Percentage of knowledgeable observers who rate OSFI as good or very good at timeliness of processing approvals.

For Measures 2, 3 and 4 above: In 2005, OSFI commissioned independent consultations with pension plan sponsors and professionals. Among sponsors (62%) and professionals (79%), satisfaction with OSFI as a regulator of federal private pension plans was moderately high. Source: Pension Consultation Findings 200510

Ratings

2007-08 – Successfully met
2006-07 – N/A
2005-06 – N/A

 


2007-08 – N/A
2006-07 – N/A
2005-06 – N/A

2007-08 – N/A
2006-07 – N/A
2005-06 – N/A

2007-08 – N/A
2006-07 – N/A
2005-06 – N/A
Performance Discussion

Steps taken during the year in support of this objective include:

  • Used the Estimated Solvency Ratio exercise to identify defined benefit plans with an estimated solvency funding deficit (about 56% of supervised defined benefit plans as at December 2007, compared to 51% in December 2006).
  • Published revised guidance on the filing and reporting requirements for defined benefit pension plan terminations, the filing and reporting requirements for defined contribution pension plan terminations, the preparation of actuarial reports, as well as drafted new guidance on the transfer of assets between defined contribution plans.
  • Completed 15 on-site examinations during the year, with a continued focus on governance.
  • Continued to promote responsible pension plan governance and actuarial practices by working closely with the Canadian Association of Pension Supervisory Authorities (CAPSA) and the Canadian Institute of Actuaries, as well as with Humber College and Indian and Northern Affairs Canada with respect to the governance of First Nations defined contribution pension plans.
  • Worked with the Department of Finance to develop legislation and regulations for phased-in retirement.
Steps planned for the future to improve performance include:
  • OSFI will encourage certain plans to perform stress testing on their solvency positions.
  • OSFI will publish further guidance to facilitate the submission and processing of pension approvals.

Financial Resources ($ millions)
Planned Authorities Actual
$6.5 $6.5 $5.8

Human Resources (average Full-Time Equivalents, including Internal Services)
Planned Actual Difference
35 42 (7)


 

PRIORITY F


Strategic Outcome: Regulate and Supervise to Contribute to Public Confidence in
Canada's Financial System and Safeguard from Undue Loss
Program Activity: Regulation and Supervision of Federally Regulated Private Pension Plans
Program Sub-Activity: Activities related to the Regulation and Supervision of Federally Regulated Private Pension Plans
Priority F: Pension Systems and Processes (New)
Description
Enhance OSFI's ability to perform as required in an increasingly complex pensions environment. This is a multi-year priority with full implementation expected in 2010-2011.
Key Expected Results
  • Pension systems and processes adequately facilitate pension supervision and approvals.
Key Performance Measures / Achieved Results
  1. NEW Pension system and process changes are implemented according to agreed-upon timelines.
    • Initiated two projects to: 1) develop systems to support efficient approval processes and selected a winning bidder following a competitive tendering process, and 2) review the pension risk assessment framework.
Ratings

2007-08 – Successfully met
2006-07 - N/A
2005-06 - N/A

Performance Discussion

Steps taken during the year in support of this objective include:

  • OSFI's review of its pensions risk assessment framework sets the stage for the definition of system requirements to support pension supervision.
  • Focused effort on reducing a backlog in requests for approvals, including refining internal approval processes and publishing additional approval instruction guides, resulted in a 25% reduction in the number of outstanding approvals from our last year end as well as a significant 50% reduction in the number of approvals older than two years.
Steps planned for the future to improve performance include:
  • Completion of the implementation of the new system to support the pension approvals function.
  • Completion of the review of the pension risk assessment framework, update our risk assessment and monitoring processes and develop high-level requirements for the associated pensions IT system to support it.
  • Continue to improve the efficiency and timeliness of its approvals process targeting a further 25% reduction in the number of approvals older than one year.
Financial Resources and Human Resources: Included in Priority 4

 

PRIORITY 5


Strategic Outcome: Regulate and Supervise to Contribute to Public Confidence in
Canada's Financial System and Safeguard from Undue Loss
Program Activity: International Assistance
Program Sub-Activity: Activities related to International Assistance
Priority 5: Contribute to awareness and improvement of supervisory and regulatory practices for selected foreign regulators through the operation of an International Assistance Program. (Ongoing)
Description
This program activity incorporates activities that provide help to other selected countries that are building their supervisory and regulatory capacity. The costs for this program are recovered primarily via a Memoranda of Understanding between OSFI the Canadian International Development Agency (CIDA).
Key Expected Results
  • Contribute to the awareness and improvement of supervisory and regulatory practices for foreign regulators and jurisdictions.
Key Performance Measures / Achieved Results
  1. Workshop participants and clients are of the view that the assistance provided by OSFI is relevant to their work. Source: Survey of International Advisory Group (IAG) program participants11
    • Among respondents, 95.0% found the assistance provided by IAG to be relevant, e.g., providing new knowledge; helpful to their professional work.

  2. NEW Workshop participants and clients are of the view that OSFI trainers are competent. Source: Survey of IAG program participants
    • Among respondents, 98.3% found IAG trainers to be very competent or competent

Ratings

2007-08 – Successfully met
2006-07 – Successfully met
2005-06 – Successfully met

2007-08 – Successfully met
2006-07 – N/A
2005-06 – N/A

Performance Discussion

Steps taken during the year in support of this objective include:

  • During 2007-2008, IAG delivered 42 bilateral or multilateral programs, sometimes in partnership with other technical assistance providers, in 30 countries.
  • IAG continues to work closely with the supervisory authorities in Ghana, Nigeria and Malaysia to help these jurisdictions transition to risk-based supervision for financial institutions.
  • CIDA's Performance Review Policy necessitates periodic independent evaluations of its technical assistance projects. In the fall of 2007, CIDA consulted with a number of organizations overseas that have received assistance from OSFI. The results of these inquiries indicate that there have been important and generally sustainable impacts on capacity building in countries where IAG has established continuing relationships through follow-up visits. OSFI's training workshops were also seen to be useful.
Steps planned for the future to improve performance include:
  • Going forward, IAG will increasingly try to focus on a limited number of priority countries chosen primarily for their capacity to effect change.

Financial Resources ($ millions)
Planned Authorities Actual
$2.0 $2.0 $2.0

Human Resources (average Full-Time Equivalents, including Internal Services)
Planned Actual Difference
7 7 0


 

PRIORITY 6


Strategic Outcome: Contribute to Public Confidence in Canada's Public Retirement Income System
Program Activity: Office of the Chief Actuary (OCA)
Program Sub-Activities: Canada Pension Plan & Old Age Security; Public Pension Plans; Canada Student Loans
Priority 6: Contribute to ensuring there are financially sound federal government public pension and other programs. (Ongoing)
Description
The OCA provides a range of actuarial services, under legislation, to the Canada Pension Plan (CPP) and some federal government departments. The OCA estimates long-term expenditures, revenues and current liabilities of the CPP and of long-term future expenditures for the Old Age Security (OAS) program, and prepares statutory triennial actuarial reports on the financial status of the Public Sector Pension and Benefits Plans. The OCA also undertakes the actuarial review of the Canada Student Loans Program (CSLP).
Key Expected Results
  • Provide expert and timely actuarial advice in the form of high-quality reports tabled in Parliament, in respect of the CPP.
  • Provide expert and timely actuarial advice in the form of high-quality reports, in respect of Public Sector Pension and Benefits Plans.
  • Provide expert and timely actuarial advice in the form of high-quality reports, in respect of the CSLP.
Key Performance Measures / Achieved Results
  1. CPP Peer Review Panel12 agrees that the Chief Actuary and his staff have adequate professional experience to provide expert advice in regard to, and undertake actuarial valuations of the CPP.
    • The external peer panel's findings confirm that the professional experience of the Chief Actuary and the staff who worked on the 23rd Actuarial Report was adequate for carrying out the work required.

  2. The CPP Triennial Actuarial report was completed and tabled within legislated requirements and timeframes.
    • The 23rd Actuarial Report on the CPP was tabled in the House of Commons, as required, in October 2007.13

  3. Independent observers14 are of the view that reports on the Public Sector Pension & Benefits Plans are comprehensive and that the actuarial opinion is appropriate.
    • The Office of the Auditor General (OAG) received reviews that confirmed that the valuations of the liability estimates for accounting purposes prepared by the OCA conform to the requirements of Section PS 3250 and PS 3255 of the CICA Public Sector Accounting Handbook and use sufficient and reliable data, reasonable assumptions and consistent methodology.

  4. The Public Sector Actuarial Reports were completed and tabled within legislated requirements and timeframes.
    The OCA tabled actuarial reports on pension plans as follows:
    • for RCMP (Dependants) on October 29, 2007;
    • for federally appointed judges on January 28, 2008;
    • for members of Parliament on April 28, 2008.

  5. NEW The Office of the Chief Actuary is the service provider of choice to complete actuarial reports in respect of the CSLP.15
    • In 2007, the OCA received the mandate to provide the appropriate ministers a seventh actuarial review of the CSLP.

  6. NEW The CSLP Actuarial Report was completed within the agreed-upon requirements and deadlines of HRSDC.
    • In June 2007, the OCA completed and provided on time to the appropriate ministers the sixth actuarial review of the CSLP.

Ratings

2007-08 – Successfully met
2006-07 – N/A
2005-06 – N/A

 

2007-08 – Successfully met
2006-07 – N/A
2005-06 – N/A

2007-08 – Successfully met
2006-07 – Successfully met
2005-06 – Successfully met

 

2007-08 – Successfully met
2006-07 – Successfully met
2005-06 – Successfully met

2007-08 – Successfully met
2006-07 – N/A
2005-06 – N/A

2007-08 – Successfully met
2006-07 – N/A
2005-06 – N/A
Performance Discussion

Steps taken during the year in support of this objective include:

  • The triennial actuarial report on the CPP involves projections of CPP revenues and expenditures over a long time period (75 years), so that the future impact of historical and projected trends in demographic and economic factors can be properly assessed. Canadians want to feel confident that the CPP will be able to meet their needs in future years. The actuarial report provides Canadians with the most recent information on the financial status of the Plan. Most of the recommendations identified in the previous review were taken into account in the 23rd Actuarial Report on the CPP.
  • The public sector pension and benefit plans reports prepared by the OCA provide actuarial information to decision-makers, Parliamentarians and the public, increasing transparency and confidence in the retirement income system.
Steps planned for the future to improve performance include:
  • In 2008-2009, the OCA will continue to provide actuarial services for the CPP, OAS and other government programs.
  • The OCA will look for ways of improving how it delivers services to its clients by implementing recommendations from independent peer reviews, improving valuation techniques, and participating in professional meetings and committees to broaden its sources of information and advice.

Financial Resources ($ millions)
Planned Authorities Actual
$6.1 $6.1 $5.1

Human Resources (average Full-Time Equivalents, including Internal Services)
Planned Actual Difference
39 36 3