ARCHIVED - RPP 2007-2008
Office of the Superintendent of Financial Institutions Canada

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SECTION III: SUPPLEMENTARY INFORMATION

Organizational Information

Organizational Chart

OSFI comprises three sectors (see organization chart below), each headed by an Assistant Superintendent. Each sector works interdependently to achieve OSFI’s strategic outcomes. In addition, there is an independent Internal Audit and Consulting function that reports directly to the Superintendent. The Office of the Chief Actuary (OCA) was created within the organization as a separate unit to provide effective actuarial and other services to the Government of Canada and provincial governments that are Canada Pension Plan (CPP) stakeholders.

OSFI Organization Chart, as at December 31, 2006

Click to enlarge

Workforce

As at December 31, 2006, OSFI employed 468 people in offices located in Ottawa, Montreal, Toronto and Vancouver.

OSFI’s work requires the effort and attention of multidisciplinary teams. It requires a combination of broad perspective and in-depth expertise. OSFI builds excellence into its culture, and encourages continuous learning through teamwork, professional development and training opportunities, and the provision and support of advanced technologies.

OSFI’s unique work environment benefits from a full spectrum of professional experience and expertise, drawing on the talents of recent graduates, as well as seasoned industry and regulatory experts.

Chart of Full-Time Equivalent Headcount

Sector	As at March 31, 2006	% of total		As at December 31, 2006	% of total
Corporate Services	117	27%		133	28%
Supervision	169	39%		177	38%
Regulation	122	28%		131	28%
Office of the Chief Actuary	28	6%		27	6%
TOTAL	436	100%		468	100%

The change in the Corporate Services Sector is in support of major technology initiatives; where appropriate, projects are staffed with term positions that coincide with the project's duration. (As at March 31, 2006 and December 31, 2006, there were one and ten project term positions on strength, respectively). Corporate Services includes employees in the Superintendent’s Office, Audit and Consulting Services and the secretariat of the Audit Committee. The change in the Supervision Sector reflects the staffing of approved positions that were vacant as at March 31, 2006. The change in the Regulation Sector mainly reflects the addition of resources in the areas of private pension plans, anti-money laundering and anti-terrorism financing activities, and of accounting policy to support OSFI’s Accounting Standards priority.

Key Partners

OSFI works with a number of key partners in advancing its strategic outcomes. Together, these departments and agencies constitute Canada’s network of financial regulation and supervision and provide a system of deposit insurance. On a federal level, partnering organizations include the Department of Finance ( http://www.fin.gc.ca), the Bank of Canada ( http://www.bank-banque-canada.ca), the Canada Deposit Insurance Corporation ( http://www.cdic.ca), the Financial Consumer Agency of Canada ( http://www.fcac-acfc.gc.ca ), and the Financial Transactions and Reports Analysis Centre of Canada ( http://www.fintrac.gc.ca ), among others.

In addition, OSFI collaborates with certain provincial and territorial supervisory and regulatory agencies, as necessary, and with private-sector organizations and associations, particularly in rule making. OSFI plays a key role in the International Association of Insurance Supervisors (http://www.iaisweb.org) and international organizations such as the Basel Committee on Banking Supervision (http://www.bis.org/bcbs/index.htm).

Maintaining good relationships with these organizations is critical to OSFI’s success. OSFI reviews, on an annual basis, its involvement with these organizations to ensure it is maximizing the effective use of resources.

 

Departmental Links to the Government of Canada Outcome areas

The following table outlines OSFI’s 2007-2008 expenditures by activity, and links these activities to OSFI’s Strategic Outcomes and the Government of Canada Outcome areas.

The expenditures of each activity in the table include a share of OSFI’s Corporate Services costs, which have been allocated in a consistent manner to accurately reflect the total cost of each activity; to support equitable billing; and to support the Treasury Board requirement to understand Government-Wide Corporate Services and fully-loaded program costs. OSFI’s largest activity is the regulation and supervision of federally regulated financial institutions, which utilizes approximately 84% of OSFI’s resources. The net cost of the Office of the Chief Actuary activity is funded by an annual parliamentary appropriation for actuarial services to the Government of Canada related to Public Pensions.

2007-2008 ($ thousands)
	Budgetary					Total Main Estimates	Total Planned Spending
Program Activity	Operating	Capital	Gross	Revenue	Net
Strategic Outcome #1: To regulate and supervise to contribute to public confidence in Canada’s financial system and safeguard from undue loss.
1.1 Regulation and supervision of federally regulated financial institutions	69,222	6,692	75,914	75,914	0	0	0
1.2 Regulation and supervision of federally regulated private pension plans	6,513	0	6,513	6,513	0	0	0
1.3 International Assistance	2,026	0	2,026	2,026	0	0	0
Strategic Outcome #2: To contribute to public confidence in Canada's public retirement income system.
2. Office of the Chief Actuary	6,066	0	6,066	5,282	784	784	784
Total	83,827	6,692	90,519	89,735	784	784	784

 

Note: Corporate Services costs are allocated across the activities based on direct human resources costs.

• Program Activity #1.1 contributes to the achievement of the Government of Canada’s “strong economic growth” and “a safe and secure world through international cooperation” outcome areas.
• Program Activity #1.2 contributes to the achievement of the Government of Canada’s “strong economic growth” and “income security for Canadians” outcome areas.
• Program Activity #1.3 contributes to the achievement of the Government of Canada’s “strong economic growth” and “a safe and secure world through international cooperation” outcome areas.
• Program Activity #2 contributes to the achievement of the Government of Canada’s “income security for Canadians” outcome area.

Financial and Other Tables

This section presents a number of financial tables that detail OSFI’s Expenditures and Revenues for the planning period. Tables 1 to 6 are provided in accordance with Treasury Board requirements. The remaining tables offer additional information on OSFI’s Regulatory Plan and Internal Audits.

Background

OSFI recovers its costs from several revenue sources. Costs for risk assessment and intervention (supervision), approvals and rule making are charged to the financial institutions and private pension plans that OSFI regulates and supervises.

The amount charged to individual institutions for OSFI’s main activities of supervision, approvals and rule making is determined in several ways. In general, the system is designed to allocate costs based on the approximate amount of time spent supervising and regulating institutions. As a result, well-managed, lower-risk institutions and those with fewer approvals bear a smaller share of OSFI’s costs.

Specific user fees cover costs for certain approvals. Problem (staged) institutions are assessed a surcharge approximating the extra supervision resources required.

OSFI also receives revenues for cost-recovered services. These include revenues from the Canadian International Development Agency (CIDA) for international assistance, revenues from provinces for which OSFI does supervision on contract, and revenues from other federal agencies for which OSFI provides administrative support. Cost-recovered services revenue also includes amounts charged separately to major banks for the implementation of the internal ratings-based approach of the New Basel Capital Accord.

The remainder of the costs of risk assessment and intervention, approvals and rule making are recovered through base assessments against institutions and private pension plans fees according to various formulae.

On April 1, 2002, OSFI began collecting late and erroneous filing penalties from financial institutions that submit late and/or erroneous financial and non-financial returns. On August 31, 2005, the Administrative Monetary Penalties (OSFI) Regulations came into force. These Regulations implement an administrative monetary penalties regime pursuant to which the Superintendent can impose penalties in respect of specific violations, as designated in the schedule to the Regulations. These Regulations incorporate the late and erroneous filing penalty regime and replace the Filing Penalties (OSFI) Regulations, which came into force on April 1, 2002. These penalties are billed quarterly, collected and remitted to the Consolidated Revenue Fund. By regulation, OSFI cannot use these funds, which are recorded as non-respendable revenue, to reduce the amount that it assesses the industry in respect of its operating costs.

The Office of the Chief Actuary is funded by fees charged for actuarial services and in part by an annual parliamentary appropriation for services to the Government of Canada related to public pensions. OSFI’s financial statements are prepared using Generally Accepted Accounting Principles (GAAP), are audited annually by the Office of the Auditor General and are published in OSFI’s Annual Report. OSFI’s annual reports can be accessed at http://www.osfi-bsif.gc.ca/osfi/index-eng.aspx?DetailID=647

Financial Tables

Introduction

OSFI continues to re-evaluate its programs to ensure that they contribute to OSFI’s mandate and are efficiently managed. In so doing, OSFI has been successful at minimizing ongoing operating cost increases and at judiciously managing its human resources in optimal ways. As a result, OSFI’s human resources (average FTEs) are increasing by just under 2% from 2006-2007 to 2007-2008 and are expected to remain effectively flat over the planning period.

Total gross Budgetary Main Estimates are planned to increase by 4.9% from 2006-2007 to 2007-2008, due primarily to the increase in human resources, normal inflationary and merit adjustments and continued annual capital investments. These investments in enabling technologies, information management strategies and information technology infrastructure are consistent with OSFI’s priority on resources and infrastructure during the planning period.

Total gross Budgetary Main Estimates are planned to increase by 0.8% from 2007-2008 to 2008-2009 due in part to the completion of several information technology projects in 2007-2008. In 2009-2010, OSFI is planning to renew its Toronto office lease at market rates in that year, which are estimated to be 65% higher than the current lease (which was negotiated in 1994). Coinciding with the lease renewal, OSFI is also planning an accommodation upgrade in Toronto in order to utilize its space more efficiently and align its accommodation standards more closely to those established by Public Works and Government Services Canada. The planned increase in lease costs and the accommodation plan, combined with normal inflationary and merit adjustments, are the main causes for the spending increase in 2009-2010.

The Total Planned Spending for 2006-2007 is $768 thousand. The planned increase to $784 thousand in 2007-2008 and beyond is related to adjustments granted by the Treasury Board for collective agreements for the Office of the Chief Actuary.

OSFI’s total planned spending and average full-time equivalent (FTE) complement over the three-year planning period are displayed in the following table.

 

Table 1: OSFI Planned Spending and Average Full-Time Equivalents

($ thousands)	Forecast Spending 2006-2007	Planned Spending 2007-2008	Planned Spending 2008-2009	Planned Spending 2009-2010
Regulation and supervision of federally regulated financial institutions	73,229	75,914	76,340	87,517
Regulation and supervision of federally regulated private pension plans	6,422	6,513	6,811	6,960
International Assistance	1,885	2,026	2,051	2,088
Office of the Chief Actuary (OCA)	4,791	6,066	6,071	6,224
Budgetary Main Estimates (gross)	86,327	90,519	91,273	102,789
Non-Budgetary Main Estimates (gross)	0	0	0	0
Less: Respendable revenue	85,559	89,735	90,489	102,005
Total Main Estimates	768	784	784	784
Adjustments:	0	0	0	0
Total Adjustments	0	0	0	0
Total Planned Spending	768	784	784	784
Total Planned Spending	768	784	784	784
Less: Non-respendable revenue	510	450	450	450
Plus: Cost of services received without charge	76	80	80	80
Total Agency Spending	338	414	414	414
Average Full-Time Equivalents	452	461	459	459

 

Table 2: Voted and Statutory Items Listed in Main Estimates

Tables 2a and 2b provide additional information to illustrate total Government of Canada expenditures that are related to OSFI.

Table 2a: Voted Items Listed in Main Estimates

Vote Item	($ thousands)	2006-2007 Main Estimates	2007-2008 Main Estimates
30	Program expenditures	768	784
	Total Agency	768	784

The planned increase to $784 thousand in 2007-2008 is related to adjustments granted by the Treasury Board for collective agreements for the Office of the Chief Actuary.

 

Table 2b: Statutory Items Listed in Main Estimates

Statutory Item	($ thousands)	2006-2007 Main Estimates	2007-2008 Main Estimates
(S)	Spending of revenues pursuant to subsection 17(2) of the Office of the Superintendent of Financial Institutions Act (R.S., 1985, c. 18 (3rd Supp.))	0	0
	Total Agency	0	0

 

Table 3: Services Received Without Charge

Table 3 illustrates services received without charge from other government departments.

($ thousands)	2007-2008
Audit fees from the Office of the Auditor General	80
Total 2007-2008 Services Received Without Charge	80

 

Table 4: Summary of Capital Spending by Program Activity

The table below outlines OSFI’s planned capital investments by program activity. As indicated in the commentary to Table 1, OSFI continues to develop cost-effective information management systems to maintain the robust technology infrastructure necessary to support its supervisory and regulatory activities. Several technology projects will be completed during 2007-2008, which explains why planned capital spending is dropping in 2008-2009.

In 2009-2010, OSFI is planning to renew its Toronto office lease and coinciding with the lease renewal, OSFI is developing an accommodation plan in order to utilize its space more efficiently and align its accommodation standards more closely to those established by Public Works and Government Services Canada. The accommodation plan accounts for the increase in capital expenditures in 2009-2010.

Summary of Capital Spending by Program Activity

($ thousands)	Forecast Spending 2006-2007	Planned Spending 2007-2008	Planned Spending 2008-2009	Planned Spending 2009-2010
Office of the Superintendent of Financial Institutions
Regulation and supervision of federally regulated financial institutions	6,026	6,692	5,111	12,241
Regulation and supervision of federally regulated private pension plans	0	0	0	0
International Assistance	0	0	0	0
Office of the Chief Actuary (OCA)	0	0	0	0
Total	6,026	6,692	5,111	12,241

 

Table 5: Sources of Respendable and Non-Respendable Revenue

Table 5 illustrates sources of respendable and non-respendable revenue presented on the modified cash basis, however OSFI recovers its costs through assessments and user fees billed on the accrual basis of accounting.⁵ On this basis, the expected overall revenue increase for 2007-2008 will be in the range of 5%. For 2007-2008, there are significant shifts in revenue for the Regulation and Supervision of Federally Regulated Financial Institutions program. This program’s base assessments are increasing by 7.6% due to over $2.3 million (or 3.6% of the 7.6%) in reductions of user fees and charges and cost-recovered services, and expense increases.

⁵ OSFI’s financial statements are prepared using GAAP, are audited annually by the Office of the Auditor General and are published in OSFI’s Annual Report. OSFI’s annual reports can be accessed at http://www.osfi-bsif.gc.ca/osfi/index-eng.aspx?DetailID=647

The bulk of cost-recovered services in 2006-2007 and 2007-2008 relates to the Internal Ratings Based (IRB) Basel implementation project (Priority B) that is charged directly to the major banks. This project ends on October 31, 2007, after which time any ongoing costs pertaining to Basel II are to be recovered through base assessments. The lower user fees and charges planned for 2007-2008 and beyond for this same program activity reflect the amendments to the Charges for Services Provided by the Office of the Superintendent of Financial Institutions Regulations 2002, which came into effect on April 28, 2006. The amendment reduced the number and types of legislative approvals that attract a service charge. Ongoing costs to process approvals for which service charges no longer apply are recovered through base assessments.

The increase from 2006-2007 to 2007-2008 in the cost-recovered services of the Office of the Chief Actuary reflects: the impact of achieving a full staff complement during 2006-2007; normal inflationary growth in employee compensation per collective agreements; the cost of a triennial review of the Canada Pension Plan; and the last year of a three-year phase-in, effective 2005-2006, of allocating a greater share of the Corporate Services costs to this program activity.

Sources of respendable revenue

($ thousands)	Forecast Revenue 2006-2007	Planned Revenue 2007-2008	Planned Revenue 2008-2009	Planned Revenue 2009-2010
Office of the Superintendent of Financial Institutions Regulation and supervision of federally regulated financial institutions Sources of respendable revenue
Base Assessments	65,483	70,489	73,219	84,549
User Fees and Charges	3,113	2,147	2,147	2,147
Cost-Recovered Services	4,633	3,278	974	821
	73,229	75,914	76,340	87,517
Regulation and supervision of federally regulated private pension plans Source of respendable revenue
Pension Fees	6,422	6,513	6,811	6,960
	6,422	6,513	6,811	6,960
International Assistance Sources of respendable revenue
Base Assessments	517	519	511	548
Cost-Recovered Services	1,368	1,507	1,540	1,540
	1,885	2,026	2,051	2,088
Office of the Chief Actuary (OCA) Sources of respendable revenue
User Fees and Charges	20	35	35	35
Cost-Recovered Services	4,003	5,247	5,252	5,405
	4,023	5,282	5,287	5,440
Total Respendable Revenue	85,559	89,735	90,489	102,005

Sources of Non-Respendable Revenue

($ thousands)	Forecast Revenue 2006-2007	Planned Revenue 2007-2008	Planned Revenue 2008-2009	Planned Revenue 2009-2010
Office of the Superintendent of Financial Institutions Regulation and supervision of federally regulated financial institutions Source of non-respendable revenue
Filing Penalties	510	450	450	450
Total Non-Respendable Revenue	510	450	450	450

Total Respendable and Non-respendable Revenue

86,069

90,185

90,939

102,455

 

Table 6: Resource Requirements by Sector

Table 6 provides a breakdown of OSFI’s resource requirements by Sector. Consistent with the methodology for the Program Activity Architecture (PAA), the Corporate Services Sector resources are allocated across OSFI’s other three sectors (Regulation, Supervision, and Office of the Chief Actuary) based on direct human resources costs.

Resource Requirements by Sector

2007-2008
($ millions)	Regulation and supervision of federally regulated financial institutions	Regulation and supervision of federally regulated private pension plans	International Assistance	Office of the Chief Actuary	Total Planned Spending
Regulation	$22.4	$6.5	$2.0		$30.9
Supervision	53.5				53.5
Office of the Chief Actuary				6.1	6.1
Total	$75.9	$6.5	$2.0	$6.1	$90.5

 

Table 7: OSFI’s Regulatory Plan

Legislative Acts and/or Regulations	Purpose of regulatory initiative	Expected results
Regulations Amending the Investment Limits Regulations	The Regulations are expected to be amended to (i) increase the equity investment limit for Property & Casualty companies; and (ii) to exclude equity investments made by life insurance companies and deposit-taking institutions for hedging purposes from the equity investments limits.	The amendments under consideration would provide increased flexibility in the investment limits regime. They would also level the playing field with federally regulated financial institutions that are currently exempt from the limit.
Regulations Amending the Reinsurance (Canadian Companies) Regulations and the Reinsurance (Foreign Companies) Regulations	The Regulations are expected to be amended to clarify how they apply to the accident and sickness business of life insurance companies. In addition, the Regulations will be reviewed to determine whether the maximum percentage of unregistered reinsurance allowed under the regulations remains appropriate in light of legislative amendments that will require foreign insurers to report and vest assets in respect of their business in Canada.	The amendments under consideration are expected to (1) clarify that the Regulations apply to life insurance companies that write accident and sickness insurance and that all of the premium income (i.e., not only the accident and sickness premium income) should be included in the denominator for purposes of determining the reinsurance limit; and (2) increase flexibility if it is determined that reinsurance capacity in Canada will be affected as a result of legislative amendments that will require foreign companies to vest assets in respect of their business in Canada.
Regulations Amending the Financial Leasing Entity Regulations	The Regulations are expected to be amended to provide more clarity with respect to the limitations on leasing activities and to provide more flexibility with respect to permissible residual value risk exposure.	The amendments under consideration would clarify how the limits on permitted leasing activities are to be calculated and would recognize the use of residual value insurance as an acceptable means of reducing the residual value risk exposure.

 

Table 8: Internal Audits and Evaluations

OSFI’s internal Audit and Consulting Services Group conducts regular internal audits as per its audit plan and posts the results of these audits on OSFI’s web site under About OSFI / Reports / Internal Audit Reports. Management’s response to any identified issues is contained in each report.

Upcoming Internal Audits (2007-2008*)

Name of Internal Audit	Audit Type	Status	Expected Completion Date	Link to Report
Human Resources Staffing Review	Regulatory Process	In progress	Q1/Q2 2007-2008	Will be published on OSFI Web site
Financial Institutions Group – Deposit-Taking Institutions Review	Regulatory Process	In progress	Q1/Q2 2007-2008	Will be published on OSFI Web site
Supervision Support Group – Credit Risk Division Review	Regulatory Process	Planned	Q2/Q3 2007-2008	Will be published on OSFI Web site
OSFI Planning Review	Regulatory Process	Planned	Q2/Q3 2007-2008	Will be published on OSFI Web site

* OSFI’s audit schedule is approved one year at a time, and the audits listed above were approved as part of the 2006-2007 audit schedule. The 2007-2008 Internal Audit Plan is to be approved by the Audit Committee in Q1 2007-2008 and will be published on OSFI’s Web site once approved. It will contain a schedule of audits to be undertaken in 2007-2008.

Completed Internal Audits (completed in III or IV Quarter 2006-2007)

Name of Internal Audit	Audit Type	Status	Completion Date	Link to Report
Capital Precedents Framework Review	Regulatory Process	Completed	Dec 2006	Link to report
Private Pension Plans Division - A Review of Planning Activities & Processes and 2006-07 Business & Priorities Plans	Regulatory Process	Completed	Dec 2006	Link to report

 

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