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OSFI ANNUAL REPORT 2013-2014
Office of the Superintendent of Financial Institutions Canada
255 Albert Street, 16th floor, Ottawa, ON K1A 0H2Telephone: 613-990-7788 Facsimile: 613-952-8219Toll-free line: 1-800-385-8647 Web site: www.osfi-bsif.gc.caat. No. IN1-2014E-PDF ISSN 1701-0810© Minister of Public Works and Government Services
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• OSFIwasestablishedin1987tocontributetopublicconfidenceintheCanadianfinancialsystem.ItisanindependentagencyoftheGovernmentofCanadaandreportstoParliamentthroughtheMinisterofFinance.
• OSFIregulatesandsupervisesover400banksandinsurers,andsome1,200federallyregisteredprivatepensionplans.
• TheOfficeoftheChiefActuary,whichisanindependentunitwithinOSFI,providesactuarialvaluationandadvisoryservicesfortheCanadaPensionPlan,theOldAgeSecurityprogram,the CanadaStudentLoansProgramandotherpublicsectorpensionandbenefitplans.
• OSFIrecoversitscosts,whichin2013-2014totalled$141.9million.OSFIisfundedmainlythroughasset-based,premium-basedormembership-basedassessmentsonthefinancialservicesindustryandauser-payprogramforselectedservices.AverysmallportionofOSFI’srevenueisreceivedthroughanappropriationfromtheGovernmentofCanadaforactuarialvaluationandadvisoryservicesrelatingtovariouspublicsectorpensionandbenefitplans.
• AsofMarch31,2014,OSFIemployed697peopleinofficeslocatedinOttawa,Montréal,TorontoandVancouver.
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OSFI at a Glance
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Superintendent’S MeSSage
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Thecurrentglobaleconomicenvironmentremainsfarfromnormal.Interestratesarestillathistoricallylowlevelsandgrowthinseveraladvancedeconomiesisstillnotatpre-crisislevels.Potentialvulnerabilitiesintheglobalfinancialsystem
remainasourceofuncertainty.
WhiletheCanadianfinancialsystemcontinuestobenefitfromapproachestakeninCanada,OSFIanddomesticbanksandinsurancecompaniesneedto avoidcomplacency.
In2013-2014,OSFIintroducedorfinalizedseveralguidelinesintendedtopromoteandmaintainconfidenceinCanada’sfinancialsystem.Theseincluded:LiquidityAdequacyRequirementsthatreflectinternationallyagreedminimumstandardsforthemeasurementofshort-termliquidityunderastressscenario;OwnRiskandSolvencyAssessmentandRegulatoryCapitaland
InternalCapitalTargetstostrengthentheinsuranceindustry’senterprise-wideriskmanagementprocess;and,aGuidelineonMortgageInsuranceUnderwritingasafollow-uptotheGuidelineonResidentialMortgageUnderwritingPracticesandProceduresissuedin2012.
Thefinancialservicesindustryalsofacesincreasingoperationalrisksfromongoingcyberthreats.ThistouchesnearlyallbusinessconsumerrelationshipsandpotentiallythesafetyandsoundnessoftheinstitutionsOSFIregulates.Inresponse,OSFIreleasedCyberSecuritySelf-AssessmentGuidanceinOctober2013toassistinstitutionsinassessingtheirowncyberriskand preparedness.CybersecuritywillbeanissueofcontinuingfocusforOSFIgoingforward.
In2013,Canada’sfinancialsector,includingOSFI,wassubjecttoanInternationalMonetaryFund(IMF)FinancialSectorAssessmentProgram(FSAP)review.TheFSAPreportidentifiedOSFI’sclosetouchsupervision,ourclearandstraightforwardmandate,andourabilitytoattractandretainfinancialsectorspecialistsassomeofthefactorsthathelpedCanadawithstandthecrisiswell.
TheFSAPteamnotedthatstresstestsOSFIconductedin2013showthatmajorfinancialinstitutionswouldcontinuetoberesilienttocredit,liquidity,andcontagionrisksarisingfromaseverestressscenario.TheFSAPassessorsalsoconcludedthatOSFIcontinuestobeeffectivewithahighlevelofcompliancewithinternationalstandards.OSFIbelievesthereisalwaysroomtoimproveandwillbeconsideringtherecommendationsmadeintheFSAPreportandhowwemaybeabletoaddressthem.
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Attheinternationallevel,wetookpartinongoingpeerreviewsbytheFinancialStabilityBoard(FSB)andtheBaselCommitteeonBankingSupervision(BCBS),astheseareimportantbarometersofhowwearedoing.
TheG20retainsitsfocusoninternationalregulatoryreforminordertobetterinsulatetheglobalfinancialsystemfromfutureshocks.In2013-2014,OSFIcontinueditsinvolvementinthedevelopmentofinternationalrulesthatcontributetoastrongandstableglobalfinancialsystem.OSFIchairedtheFSBSupervisoryIntensityandEffectivenessGroup,whichconductssignificantworkinrelationtothesupervisionofsystemicallyimportantfinancialinstitutions.
OSFIalsolookedinward,tostrengthenitshigh-performingandeffectiveworkforcebyprovidingmorefocusonteamsresponsibleformanagingdomesticsystemicallyimportantbanks,whileatthesametimecreatingastaffpositionthatwillfocusontherequirementsofthesmallerfinancialinstitutionsunderOSFI’spurview.Wealsomadeinvestmentsincorporateinfrastructure,particularlyinrenewingourInformationTechnologysystems.
Strongcooperationandcommunicationwithourfederalpartners,suchastheBankofCanada,theDepartmentofFinance,CanadaDepositInsuranceCorporationandtheFinancialConsumerAgencyofCanada,wasalsoacontributingfactorinallowingOSFItomeetitsgoalsin2013-2014.
ThiswillbemyfinalyearasSuperintendentofFinancialInstitutions.Duringmytenuretheworldhasgonethroughoneofitsmostdifficultfinancialcrises,theeffectsofwhicharestillbeingfelttoday.IamproudofthewaytheCanadianfinancialsystempulledtogethertoworkourwaythroughthenumerouschallengesthatwerepresented.Regulators,lawmakersandfinancialinstitutionsallplayedaroleinCanadaemerginginrelativelygoodshapewhencomparedtootherpartsoftheglobe.
ThecontributiontopublicconfidenceintheCanadianfinancialsystemthatOSFIhasbeenabletomakecomesdown–asalways–totheindividualcontributionsofouremployees.
Ourpeoplearethemostimportantelementofoureffectiveness.Ithasbeenanhonourandpleasuretoworkwiththemthesepastsevenyears.Iknowthatmysuccessor,andallCanadians,willbeabletocountontheongoingdedicationandprofessionalismofOSFI’speople.
Julie Dickson
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perforMance againSt prioritieS 2013-2014
OSFI’sroleistocontributetothesafetyandsoundnessoftheCanadianfinancialsystem,whileallowingfederallyregulatedfinancialinstitutions(FRFIs)andprivate
pensionplanstotakereasonablerisks.Withafocusonprudence,webalanceinternationalruleswithCanadianmarketplacerealities,andefficiencywiththoroughness.Lastyear’sAnnualReportlistedfourprioritiesthroughwhichOSFIsoughttoachieveitsstrategicoutcomesfor2013-2014.Thissectionreportsmajoraccomplishmentsundereachofthosepriorities.OSFIachieveditsgoalsforthereportingyearandcontinuestoworkonthesemulti-yearpriorities.Moredetailsareavailableinvariouschaptersofthisreport.
PRIORITYA–Respondingto RisksEmanatingfromthe Economy
Steps Taken
• Respondedtoconcernsaboutlowinterestratesandhighhouseholdindebtednessviaenhancedmonitoring,reviewsofretaillendingandstresstesting
• Conductedsignificantcross-sectorreviewsintheareasof
• Cybersecurityandinformationtechnologyoperationalrisk
• Retailcreditcards• Corporategovernance• Catastrophicrisk• Reinsurancerisk
• Issuednew/revisedguidelines,advisoriesorletterson• ResidentialMortgageInsuranceUnderwriting
(draft)• LiquidityAdequacyRequirements(draft)• OwnRiskandSolvencyAssessment,and
RegulatoryCapitalandInternalCapitalTargets• MinimumContinuingCapitalandSurplus
Requirements(MCCSR)update• MinimumCapitalTest(MCT)update
• IssuedCyberSecuritySelf-AssessmentGuidancetohelpFRFIsassesstheirownabilitytorespondtotherisingoperationalrisk
• ParticipatedinanInternationalMonetaryFund(IMF)FinancialSectorAssessmentProgram(FSAP)updateforCanada,whichincludedmacrostressteststhatconsideredtheimpactofhighconsumerdebtandotheradverseshocks
• Continuedtoconduct• Riskmanagementseminars• Supervisorycolleges• Crisismanagementandindustryinformation
sessions
• Participatedactivelyonvariousinternationalcommittees,including
• FinancialStabilityBoard(FSB)• BaselCommitteeonBankingSupervision
(BCBS)• SeniorSupervisorsGroup(SSG)• InternationalAssociationofInsurance
Supervisors(IAIS)
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PRIORITYB –RespondingtoRisksEmanatingfromRegulatoryReform(includingbanking,insurance,pensionsandaccountingreforms)
Steps Taken
• ReleasedanupdatetotheLifeInsuranceRegulatoryFrameworkoutliningOSFIinitiativesthrough2018
• WorkedwithIAIStodevelopaglobalframeworktoguidethesupervisionofinternationallyactiveinsurancegroups(ComFrame)aswellasabasiccapitalrequirementforglobalsystemicallyimportantinsurers(G-SIIs)
• Workedwithbanksandinsurancecompaniestogatherdataandassesstheimpactofnewcapitalrequirements,andwithbanksonnewliquidityrequirements
• TookpartintheRegulatoryConsistencyAssessmentProgramme(RCAP)ofBCBS,whichreviewsnationalimplementationofBaselminimumprudentialstandards,bycompletingaCanadaRCAPassessmentandparticipatinginAustralia,SwitzerlandandSingaporeRCAPs
• MonitoredInternationalAccountingStandardsBoardandFinancialAccountingStandardsBoarddecisionsastheyimpacttheCanadianbankandinsurancecapitalframeworks
• Providedcommentson,orparticipatedin,domesticauditqualityinitiativesoftheCharteredProfessionalAccountantsofCanadaandtheCanadianPublicAccountabilityBoard
PRIORITYC–AHigh-PerformingandEffectiveWorkforce
Steps Taken
• FinalizedimplementationofanewHumanResourcesservicedeliverymodelwithappropriatepolicies,processesandcontrols
• ImplementedorganizationalchangesintheSupervisionSectortoprovidemorefocusonteamsresponsibleformanagingdomesticsystemicallyimportantbanks
• ContinuedenhancementstothecorporateplanningprocessestofurtherintegrateHRplanningandenterpriseriskmanagement(ERM)processes
• Continuedtoensureindividualandgrouplearningplansweredrivenbybusinessneeds
PRIORITYD–AnEnhancedCorporateInfrastructure
Steps Taken
• MetallprojectmilestonesaspartofourInformationTechnologyrenewalprogram,including
• UpgradedOSFI’sexternalwebsiteandHumanResourcesManagementsystem
• LaunchedPhase1ofanewsystemforreturnsprocessing(RegulatoryReturnsSystem)inpartnershipwiththeBankofCanadaandtheCanadaDepositInsuranceCorporationandanupgradedBusinessIntelligencesolutionfordeposit-takinginstitutions
• Implementedanintegratedenterpriseresourceplanning(ERP)softwaresolutionforfinance-relatedprocesses
• Developedcorrespondenceandinquirymanagementanddocument/recordsmanagement/collaborationsystems
• ImplementedtheRegulatoryDataGovernanceFrameworktoensureOSFIeffectivelycapturesandsharesFRFIinformationenterprise-wide
Thefollowingfiveprioritieswillguidetheachievementofstrategicoutcomesfor2014-2015
1. AnticipatingandRespondingtoRisksEmanatingfromtheEconomyandFinancialSystem
2. EnhancingSupervisoryProcesses
3. AnticipatingandRespondingtoRisksEmanatingfromRegulatoryReform
4. AHigh-PerformingandEffectiveWorkforce
5. AnEnhancedCorporateInfrastructure
DetailscanbefoundonOSFI’swebsiteunderReportsandAccountability/OSFIPrioritiesfor2014-2017.
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corporate overview
Role And MAndAte
OSFIwasestablishedin1987byanActofParliament:theOffice of the Superintendent of Financial Institutions Act (OSFIAct).OSFIsupervisesand
regulatesallbanksinCanadaandallfederallyincorporatedorregisteredtrustandloancompanies,insurancecompanies,cooperativecreditassociations,fraternalbenefitsocietiesandprivatepensionplans.UndertheOSFIAct,theSuperintendentissolelyresponsibleforexercisingOSFI’sauthoritiesandisrequiredtoreporttotheMinisterofFinancefromtimetotimeontheadministrationofthefinancialinstitutionslegislation.
OSFI’smandateisto:
• Supervisefederallyregulatedfinancialinstitutionsandprivatepensionplanstodeterminewhethertheyareinsoundfinancialconditionandmeetingminimumplanfundingrequirementsrespectively,andarecomplyingwiththeirgoverninglawandsupervisoryrequirements;
• Promptlyadviseinstitutionsandplansintheeventtherearematerialdeficienciesandtake,orrequiremanagement,boardsorplanadministratorstotake,necessarycorrectivemeasuresexpeditiously;
• Advanceandadministeraregulatoryframeworkthatpromotestheadoptionofpoliciesandproceduresdesignedtocontrolandmanagerisk;
• Monitorandevaluatesystem-wideorsectoralissuesthatmayhaveanegativeimpactoninstitutions.
Fromitsmandate,OSFIhasidentifiedtwostrategicoutcomes:
1. AsafeandsoundCanadianfinancialsystem
2. AfinanciallysoundandsustainableCanadianpublicretirementincomesystem
OSFI’slegislationacknowledgestheneedtoallowinstitutionstocompeteeffectivelyandtakereasonablerisks.Italsorecognizesthatmanagement,boardsofdirectorsandplanadministratorsareultimatelyresponsibleandthatfinancialinstitutionsandpensionplanscanfail.
OSFIworkswithanumberofkeypartnersontheFinancialInstitutionsSupervisoryCommittee(FISC),whichtheSuperintendentchairs,includingtheDepartmentofFinance,theBankofCanada,theCanadaDepositInsuranceCorporationandtheFinancialConsumerAgencyofCanada.Together,theseorganizationsconstituteCanada’snetworkoffinancialregulationandsupervisionandprovideasystemofdepositorandpolicyholderprotection.
TheOfficeoftheChiefActuary(OCA),whichisanindependentunitwithinOSFI,providesactuarialvaluationandadvisoryservicestotheGovernmentofCanadaintheformofreportstabledinParliament.WhiletheChiefActuaryreportstotheSuperintendent,
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heissolelyresponsibleforthecontentandactuarialopinionsinreportspreparedbytheOCA.HeisalsosolelyresponsiblefortheactuarialadviceprovidedbytheOCAtotherelevantgovernmentdepartments,includingtheexecutivearmofprovincialandterritorialgovernments,whichareco-stewardsoftheCanadaPensionPlan(CPP).
RESOURCES
Financial Resources
OSFIrecoversitscosts,asstipulatedundertheOSFIAct.Theorganizationisfundedmainlythroughasset-based,premium-basedormembership-basedassessmentsonthefinancialservicesindustryandauser-payprogramforselectedservices.AverysmallportionofOSFI’srevenue(0.7%)isreceivedthroughanappropriationfromtheGovernmentofCanada,primarilyforactuarialvaluationandadvisoryservicesrelatingtotheCanadaPensionPlan,theOldAgeSecurityprogram,theCanadaStudentLoansProgramandvariouspublicsectorpensionandbenefitplans.
Human Resources
AsatMarch31,2014,OSFIemployed697peopleinofficeslocatedinOttawa,Montréal,Torontoand Vancouver.
ACCOUnTABILITY
Auditing
OSFI’sAuditCommitteemetfivetimesin2013-2014.TheCommitteeiscomprisedofthreeindependentmembers,oneofwhomistheChair,andtheSuperintendent.ThemandateoftheCommitteeistoprovideobjectiveadviceandrecommendationstotheSuperintendentregardingtheadequacyandproperfunctioningofOSFI’sriskmanagement,controlandgovernanceframeworksandprocesses,includingaccountabilityandauditingsystems.During2013-2014,theAuditCommitteereceivedinformationand,asappropriate,providedadviceandguidanceonkeyactivitiesincludingbutnotlimitedto:EnterpriseRiskManagement;QuarterlyandAnnualFinancialStatements;IM/ITStrategy;PerformanceMeasurement
Katie Brown, Manager, Corporate Planning, Performance and Risk ManagementFinanceandCorporatePlanningCorporateServicesSector
Nadim El-Hage, Release / QA ManagerApplicationManagementCorporateServicesSector
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Reporting;InternalControloverFinancialReporting;ValuesandEthics;InternalAuditReports;andInternalAuditoperations.
Surveys and Consultations
OSFIregularlyconductsanonymoussurveysofknowledgeableindustryobserverstohelpassessitsperformanceandeffectivenessasaregulator.SurveyresultsaredisclosedonOSFI’swebsite.
Inthefallof2013,TheStrategicCounsel,onbehalfofOSFI,conductedaseriesofconfidential,one-on-oneinterviewswithasampleofseniorexecutivesrepresentingacross-sectionoflifeinsurancecompaniesregulatedbyOSFI.TheresultsindicatethatoverallsatisfactionwithOSFIisstrongandlargelyattributabletoperceptionsofhowOSFIinteractswiththoseitregulates.Someareasforimprovementwerealsoidentifiedthroughtheconsultationand,whereappropriate,OSFIhasdevelopedactionplanstoaddressthese.ThesurveyreportisentitledLife Insurance Sector Consultation 2013-14 Report of Qualitative Research Findings.
BEnEFITSTOCAnADIAnSOSFI’sstrategicoutcomes,supportedbyourplansandpriorities,areintrinsicallyalignedwithbroadergovernmentpriorities,specificallystrongeconomicgrowth,andincomesecurityandemploymentforCanadians.AproperlyfunctioningfinancialsystemthatinspiresahighdegreeofconfidenceamongconsumersandotherswhodealwithfinancialinstitutionsmakesamaterialcontributiontoCanada’seconomicperformance.
Connecting with Stakeholders
During2013-2014,OSFIagainregularlycommunicateditsplansandactivitiestoawiderangeofstakeholdersviaitswebsiteandothermeans.Asinpreviousyears,OSFIreceivedmanyrequeststoaddressexternalconferencesandevents.TheSuperintendentandseniorOSFIofficialsdeliveredpresentationstoindustryandregulatoryforumsacrossCanadaandinternationally.SeniorOSFIofficialsappearedbeforetheHouseofCommonsStandingCommitteeonFinanceandtheSenateStandingCommitteeonnationalFinance.
OSFI’sexternalnewsletter,The Pillar,waspublishedfourtimesin2013-2014.Itservestoremindkeystakeholdersofthelatestguidelines,notices,publicstatements,andotherpertinentinformationreleasedby theOffice.
Sharing OSFI’s Expertise
Throughout2013-2014,OSFIshareditsexpertisewithinterestedCanadians,includingmembersofthegeneralpublic,industry,regulators,legislatorsandthenewsmedia,asfollows:
• Served1,344,216visitorstoOSFI’swebsite
• Respondedto11,679publicenquiries,101enquiriesfromMembersofParliamentand166enquiriesfromrepresentativesofthenewsmedia
• Deliveredover70presentationstoindustryandregulatoryforums,including13keyspeechesthatwerepostedtoOSFI’swebsite
• Processed20accesstoinformationrequestsand32 consultationswithinpermittedstatutorytimelines,asperthe Access to Information Act,and4privacyrequestswithinpermittedstatutorytimelines,asperthePrivacy Act.
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Gary Walker,AssistantSuperintendent,Corporate ServicesSector• Andrew Kriegler, DeputySuperintendent,SupervisionSector• Julie Dickson,SuperintendentofFinancialInstitutions• Mark Zelmer,DeputySuperintendent,RegulationSector
OSFI AnnuAl RepoRt 2013-201410
federally regulated financial inStitutionS
Risk assessment and Intervention
OSFIsupervisesfederallyregulatedfinancialinstitutions(FRFIs),monitorsthefinancialandeconomicenvironmenttoidentifyissuesthatmayhaveanegativeimpacton
theseinstitutions,andintervenesinatimelymannertoprotectdepositorsandpolicyholdersfromloss.OSFIdoesthiswhilerecognizingthatmanagementandboardsofdirectorsareultimatelyresponsibleandthatfinancialinstitutionscanfail.
During2013-2014,domestichouseholdindebtedness,interestratelevels,andongoingglobalfinancialuncertaintycontinuedtobeseenassourcesofpotentialsystemicvulnerability.OSFItookactiontoaddressthepossibleimpactofthesechallengesandachieveitsstrategicprioritiesbycommunicatingitsexpectationsforriskmanagementtoFRFIsandconductingsignificantreviewsinseveralareas,includingstresstesting,cybersecurityandinformationtechnologyoperationalrisk,retailcreditcards,catastrophicrisks,andcorporategovernanceandriskappetiteframeworks.WecontinuedtodevelopsupportingguidanceforOSFI’sSupervisoryFrameworkandinitiatedareviewofoursupervisoryprocessesandtools.
REVIEWBYSECTOR
Deposit-Taking
TheCanadianbankingindustryperformedsatisfactorilyin2013;solidprofitabilitywasdrivenbycontinued
revenuegrowthandastablecreditenvironment.Averagereturnonequityforthebankingsectorof16.2%(comparedto17.2%in2012)reflectsincreasedcapitallevels.
TheCanadianbankingindustryiscomprisedofsixlargedomesticbanksandmanysmallerdeposit-takinginstitutions(DTIs).Thesixlargestbanksaccountforapproximately90%oftotalassetsamongCanada’sfederallyregulatedDTIs.Theirdiversifiedbusinesslinesextendbeyondtraditionaldeposit-takingandlendingactivitiesintotrading,investmentbanking,wealthmanagementandinsurance.Inadditiontotheirprimarydomesticfocus,theselargebankshaveoperationsinmanycountriesacrosstheglobe.
Theremaining10%ofCanadianbankingassetsareheldbysmallerinstitutionswithnichemarketandbusinessstrategies,suchasmortgagelending,commercialrealestateorcreditcards.
OSFIfullyimplementedtheBaselIIIcapitalrules,andbanksbeganreportingthenewCommonEquityTier1(CET1)capitaladequacyratiosin2013.Canadianbanksremainabovethetargetlevelof7%forCET1.Further,OSFIwillapplya1%capitalsurchargeaboveminimumBaselrequirementstothesixlargedomesticbanksinCanada(identifiedasdomesticsystemicallyimportantbanksorD-SIBs),targetedbyBaselforJanuary2016.Aswell,OSFIobligesCanadianD-SIBstomeetenhanceddisclosurerequirements,andtohaveinplaceadvancedpracticesintermsofthedesignandoperationofoversightfunctionsandinternalcontrols.D-SIBsarealsosubjecttomoreintensesupervisionthanotherfinancialinstitutions.
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ThebankingindustrybenefitedfromtherelativelystableCanadianeconomyin2013-2014.Whilecreditperformanceforretaillending(mortgages,autoloans,creditcards)remainsacceptable,vulnerabilitiescontinuerelatedtohighhouseholddebtlevels,theriskofasharpriseininterestratesandweakglobaleconomicconditions.GrowthcontinuedincorporateandcommerciallendingincludingCommercialRealEstate,whereascreditperformancehasbeenstable.
OSFI,inconjunctionwiththeBankofCanada,conductedanothermacroeconomicstress-testingexercisein2013,inthecontextoftheInternationalMonetaryFund(IMF)FinancialSectorAssessmentProgram(FSAP)updateforCanada.Thisinvolvedprescribingacommonscenariotoparticipatingbanksinordertobetterunderstand,andtoincreaseawarenessinfinancialinstitutionsabout,potentialsystem-widerisksandvulnerabilities.OSFIsharedtheindividualresultsofourreviewwithparticipatingbanks,andhasusedthefindingstoinformourassessmentofbankriskexposuresandtheirabilityto withstandadverseevents.
Life Insurance
ThecapitalpositionoftheCanadianlifeinsuranceindustryremainedacceptableand,indeed,improvedin2013.OSFI’ssupervisorytargetratioforboththeMinimumContinuingCapitalandSurplusRequirement(MCCSR)foroperatingfederallyregulatedCanadianlifeinsurancecompaniesandtheTestofAdequacyofAssetsandMargin(TAAM)forbranchesofforeigncompaniesoperatinginCanadais150%.TheaggregatecapitalratioforCanadianlifeinsurersin2013was242%(218%in2012)withallcompaniesreportingcapitalratiosaboveOSFI’stargetcapitallevel.Highercapitalratiosreflectimprovementintheeconomicenvironment,asavailablecapitalincreasedwithearningsandrequiredcapitaldeclinedduetotheimpactofhigherinterestratesandstrongequitymarkets.
During2013,thelifeinsuranceindustrybenefitedfromimprovingequitymarketsandmodestincreasesinlong-terminterestrates.Withasoundcapitalbaseandstrongreservelevels,thelifeinsuranceindustrywashealthygoinginto2014;however,challengesremainwithcurrentlowinterestrates,andsensitivityto potentialequitymarketdeclinesandvolatility.
Recognizingthatinvestmentportfoliosaregeneratinglowerearningsinthewakeoflowyieldsonfixed-incomeinvestments,somelifeinsurancecompanieshavebeenexploringalternative,higherrisk/returninvestments.OSFIwillcontinuetocloselymonitorboth
conformanceto,andchangesin,riskappetitepoliciesamongfederallyregulatedcompanies.
Thelifeinsuranceindustrynetincomeafterextraordinaryitemsanddiscontinuedoperationsfor2013increased9%over2012,to$8.1billion(78%fromthethreelargestlifeinsurancecompanies).Thiscompareswitha2012performanceof$7.4billioninnetincome(73%fromthethreelargestcompanies).Returnonequityfortheindustrywas9.9%in2013comparedto9.8%in2012.
Creditexperienceinlifeinsurerinvestmentportfolioswasstablein2013.Inaggregate,nosignificantchangeswererecordedinthelevelsofcreditprovisionsattheconglomeratecompanies.OSFIcontinuestomonitorthecreditenvironmentandindustrypracticesrelatingtocreditriskmanagement.
OSFIaskedaselectnumberoflifeinsurersandlifereinsurerstocompleteamacroeconomicstresstestin2013,aswedidin2012,alsointhecontextofthe
Alexander Kim, Senior ManagerDeposit-takingGroupSupervisionSector
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IMF-FSAPupdateforCanada.Acommonscenariowasprescribedtoparticipatinginsurersinordertobetterunderstand,andtoincreaseawarenessinfinancialinstitutionsabout,potentialsystem-widerisksandvulnerabilities.OSFIsharedtheindividualresultsofourreviewwiththeparticipatingcompanies,andwillusethefindingstoinformourassessmentofthecompanies’riskexposuresandtheirabilitytowithstandadverseevents.
Property and Casualty Insurance (excluding mortgage insurance)
Thefinancialperformanceofthepropertyandcasualty(P&C)industryinCanadawasimpactedbythecatastropheclaimsarisingfromtheCalgaryfloodinJuneandtheTorontorainstorminJulyof2013.Asaresult,underwritingincomewaseffectivelybreak-even,withinvestmentreturnsbeingthemaincontributortooverallearnings.netincomefortheP&Cindustryof$2.4billiondecreased37.5%overthepreviousyear’snetincomeof$3.9billion,whilereturnonequityfellto7.4%,from11.4%ayearearlier.
Akeymeasureoftheindustry’scoreprofitabilityisthe‘combinedratio’,whichmeasurestherevenuefrompremiumsrelativetothesumofclaimsplusexpenses.Acombinedratiounder100%indicatesthatpremiumincomeexceedsclaimsandexpensesandthatanunderwritingprofithasbeenearned.In 2013,thecombinedratiowas100.2%,consistentwithanapproximatebreak-evenunderwritingincome.Thisisadeteriorationcomparedtothepreviousyear’scombinedratioof96.2%.
FortheP&Cindustry,investmentincomebeforerealizedgainsof$2.5billionin2013wassimilartothatreportedlastyear,butthereturnoninvestmentsbeforerealizedgainscontinuedtodecline,fallingto2.64%in2013from2.71%in2012.Realizedgains(fromthesaleofhigheryieldingassets)fellto$290millionin2013comparedwith$862millionin2012.Theseresultsreflecttheloweryieldsavailableastheportfolioisreinvested.Thiscontinuingdeclinehighlightstheimportanceofcoreunderwritingtoachieveandsustainfinancialresults.
Jennifer Marsan, Senior SupervisorMontrealRegionalOfficeSupervisionSector
Sylvia Quenum, Senior Supervisor MontrealRegionalOfficeSupervisionSector
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TheMinimumCapitalTest(MCT)isthecapitalmetricforCanadianP&CcompaniesandtheBranchAdequacyofAssetsTest(BAAT)isusedforforeign-ownedP&CoperationsinCanada.CapitalratiosfortheP&Cindustryin2013werestablerelativeto2012,with anindustryweightedMCT/BAATratioof258%—wellaboveOSFI’ssupervisorytargetof150%.
WithnearlyhalfoftheCanadianP&Cinsuranceindustry(bypremiumvolume)beingforeignowned(ultimateparentsaretypicallylocatedintheUnitedStatesorEurope),marketconditionsinthehomejurisdictioncanaffectCanadianoperations;henceOSFImonitorsparentcompanyconditions.Globally,withalowerlevelofcatastrophiceventsin2013,underwritingresultsweregenerallyfavourableandcapitallevelsweremaintained.
Domestically,personalautoinsurancecontinuedtobethemajorunderwritingchallenge.ReformsrelatedtoaccidentbenefitsimprovedprofitabilityinOntario,thelargestautoinsurancemarket.However,thelegislatedtargetof15%ratereductionsinOntariobyAugust2015(with8%reductionstoberealizedbyAugust2014)maynegativelyimpactOntariopersonalautoinsuranceunderwritingprofitabilityiftheadditionalclaims-relatedmeasuresintroducedinthe2013Ontariobudgetaredelayedinimplementation.Thepropertyinsurancesegmentcontinuedtoseeincreasesincatastrophe-relatedclaimsfromsevereweatherevents.With$3.5billionininsuredlossesinCanada,2013wastheworstyearonrecordforinsuredcatastrophelosses.Thecommercialliabilityinsurancemarketremainscompetitivewithpricingremainingsoftinsomesegments.P&Cproductlinesareexperiencingsignificantinnovationandstructuralchange.
Mortgage Insurance
ThemortgageinsuranceindustryinCanadacontinuedtoexperiencefavourablefinancialresultsduring2013,withimprovementsinnetincomeover2012,mostlyreflectingareductioninclaimsexpenses(excludingaone-timegainduring2012).Investmentsgeneratedamodestincreaseinaverageyield.TheMCTcapitalratioincreasedoverthatof2012,largelyreflectingtheone-timegainduetothecancellationofguaranteefunds,whichwereeliminatedwiththeintroductionoftheProtection of Residential Mortgage orHypothecary Insurance Act andarenowrecognizedintheMCT.notwithstandingthecurrentlyfavourablefinancialresults,mortgageinsuranceremainsvulnerabletoconsumerdebtlevels,housingprices,interestratesandunemploymentrates.
SUPERVISORYTOOLS
Managing Risk Effectively
In2013-2014,OSFIcontinuedupdatinginternalguidancetosupportitsrisk-basedSupervisoryFramework,whichconsidersaninstitution’sinherentbusinessrisks,riskmanagementpractices(includingcorporategovernance)andfinancialcondition.
OSFIagainheldannualriskmanagementseminarsin2013-2014fortheindustriesitregulates(DTIs,lifeinsurance,andP&Cinsurance)toreinforcetheneedforstrongriskmanagementandtosharelessonslearned.ThegoalistocommunicateOSFI’sexpectationsrelatedtokeyriskmanagementareasbasedondetailedworkOSFIhasundertakenduringtheyear,andtoshareinformationonissuesbeingdiscussedinternationallybyregulators.TheseminarsalsoprovideparticipantswiththeopportunitytoaskquestionsofOSFI’sseniorsupervisoryandregulatoryteams.
ContinuingthepracticeoforganizingCollegesofSupervisors,in2013-2014OSFIhostedacollegeforeachofCanada’sfivelargestbanks.InlinewithFinancialStabilityBoardrecommendations,thecollegesbroughttogetherexecutivesfromeachbankwithsupervisorsfromjurisdictionswheretheydobusiness.OSFIalsohostedasupervisorycollegeforalargelifeinsurancecompany.Crisismanagementandindustryinformationsessionswereagainheldforthesevenlargestdeposit-takinginstitutions,inconjunctionwiththeCanadaDepositInsuranceCorporation.
Composite Risk Ratings
TheCompositeRiskRating(CRR)representsOSFI’soverallassessmentofaninstitution’ssafetyandsoundness.Beginningin2013-2014,aBranchRiskRating(BRR)wasassignedtoForeignBankBranches(FBBs)operatinginCanada,ratherthanaCRR,reflectingOSFI’slimitedaccesstotheinformationneededtoassesstheFBB’ssafetyandsoundness.Therearefourpossibleriskratings:‘low’,‘moderate’,‘aboveaverage’and‘high’.TheCRRisreportedtomostinstitutionsatleastonceayear(certaininactiveorvoluntarywind-upinstitutionsmaynotberated).SupervisoryInformationRegulationsprohibitinstitutions(orOSFI)frompubliclydisclosingtheirrating.AsattheendofMarch2014,OSFIhadassignedCRRratingsoflowormoderateto91%andaboveaverageorhighto9%ofallCRR-ratedinstitutions.Incomparison,asatMarch31,2013,89%ofallratedinstitutionswereassessedaslowormoderateCRR,and11%wereassessedaboveaverageorhighCRR.
14 OSFI AnnuAl RepoRt 2013-2014
Intervention Ratings
Financialinstitutionsarealsoassignedanintervention(stage)rating,asdescribedinOSFI’sguidestointerventionforFRFIs,whichdeterminesthedegreeofsupervisoryattentiontheyreceive.Broadly,theseratingsarecategorizedas:normal(stage0);earlywarning(stage1);risktofinancialviabilityorsolvency(stage2);futurefinancialviabilityinseriousdoubt(stage3);andnon-viable/insolvencyimminent(stage 4).AsatMarch31,2014,therewere35stagedinstitutions.Withafewexceptions,mostofthestagedinstitutionswereintheearlywarning (stage1)category.
Regulation and Guidance
OSFIprovidesaregulatoryframeworkofguidanceandrulesthatmeetsorexceedsinternationalminimumsforfinancialinstitutions.Inadditiontoissuingguidance,OSFIprovidesinputintothedevelopmentoffederallegislationandregulationsaffectingfederallyregulatedfinancialinstitutions(FRFIs)andcommentsonaccounting,auditingandactuarialstandardsdevelopment,whichincludesdetermininghowto
incorporatethemintoourregulatoryframework.OSFIalsoparticipatesinanumberofinternationalanddomesticrule-makingactivities.
Domestic Rule making
REVISIOnSTOFInAnCIALInSTITUTIOnS LEGISLATIOn
ThegoverningstatutesapplicabletoFRFIsarereviewedeveryfiveyears(mostrecentlyin2012)toensuretheyremaincurrentandpromoteanefficient,competitiveandprudentfinancialservicessector.During2013-2014,OSFIcontinueditsconsultationsrelatedtotheeventualrevisionofthe Assessment of Financial Institutions Regulations, 2001.Aspartoftherequirementsunderthefederalgovernment’sRedTapeReductionexercise,OSFIreleaseditsForwardRegulatoryPlanfortheperiodof2014-2016.Theseplans,whichareabi-annualexercise,describeregulatorychangesorproposalsthatadepartmentoragencyexpectstointroduceovera24-monthperiod.TheplansareintendedtoimprovetransparencyandpredictabilityfortheinstitutionsOSFIregulates.
Neil Colligan, Senior Financial AnalystRisks,Surveillance,andAnalyticsDivisionSupervisionSector
Victor Adesanya, Manager, OperationsPropertyandCasualtyInsuranceGroupSupervisionSector
15 OSFI AnnuAl RepoRt 2013-2014
ACCOUnTInG,AUDITInGAnD ACTUARIAL STAnDARDS
OSFIisamemberoftheCanadianAccountingStandardsBoard’s(AcSB)UserAdvisoryCouncilandanobserverontheInsuranceAccountingTaskForce.OSFIisalsoanobserverontheReportingonSupplementaryMattersArisingfromanAuditorReviewEngagementTaskForceoftheCanadianAuditingandAssuranceStandardsBoard(AASB).Additionally,OSFIisanon-votingmemberoftheAuditingandAssuranceStandardsOversightCouncil,whichoverseestheactivitiesoftheAASB.OSFIworkscloselywithCharteredProfessionalAccountantsofCanada(CPACanada),formerlytheCanadianInstituteofCharteredAccountants(CICA),andtheCanadianPublicAccountabilityBoard(CPAB)ondomesticaccountingrulesandinitiativestoimproveauditquality.In2013-2014,OSFIprovidedpositionsonthe followinginitiatives:
• AcSBExposureDraft:InsuranceContracts
• JointCPACanadaandCPABdiscussionpaperonEnhancingAuditQuality:TheRoleoftheAuditCommitteeinExternalAuditorOversight
• CPACanadaExposureDraftontheindependencestandardcontainedintheRuleofProfessionalConduct204Independence
• CPABdraftProtocolforAuditFirmCommunicationofCPABInspectionFindingswithAuditCommittees
Inadditiontoprovidingpositionsondomesticauditqualityinitiatives,OSFIissuedanindustry-wideletteroutliningexpectationsregardingearlyadoptionof:
• amendmentstoIFRS9–GeneralHedgingandOwnCreditRisk
• amendmentstoIAS36–RecoverableAmountDisclosuresfornon-financialAssets
OSFIworkscloselywiththeCanadianInstituteofActuaries(CIA)andtheActuarialStandardsBoard(ASB)toensurethatactuarialstandardsareappropriateandleadtoacceptablepracticeinareassuchasvaluation,riskandcapitalassessmentatentitiesregulatedbyOSFI.In2013-2014,wecontinuedtoparticipateonseveralCIApracticecommitteesandtoconsultwiththeCIAondevelopmentsrelatedtoourworkonanewsolvencyframeworkforlifeinsurance companies.
CAPITALAnDLIQUIDITYGUIDAnCE
Banks and Trust and Loan Companies – Capital Adequacy Requirements
Innovember2013,OSFIreleaseditsDraftLiquidityAdequacyRequirements(LAR)Guidelineforpublicconsultation.Thedraftguidelinereflectsinternationallyagreedminimumstandardsforthemeasurementofshort-termliquidityunderastressscenariothatwillbeappliedtoallbanks,bankholdingcompanies,andtrustandloancompaniesinCanada.ThefinalguidelinewasissuedinMay2014andwillcomeintoeffectasofJanuary2015.
InAugust2013,OSFIprovidedadditionalguidanceontheapplicationofitsCapitalAdequacyRequirements(CAR)Guideline’screditriskcapitalrequirementsforCreditValuationAdjustments(CVA).Thisguidancewasintendedtoensureaphased-intransitionprocesscomparabletothatputinplaceinothermajorjurisdictionstomeetBaselIIIstandardsonCVA.
Life Insurance Companies
Innovember2013,OSFIreleasedanupdatetotheLifeInsuranceRegulatoryFramework,whichprovideslifeinsurancecompaniesandindustrystakeholderswithanoverviewofregulatoryinitiativesthatOSFIwillbefocusingonovertheperiodending2018.ItoutlineshowtheregulatoryframeworkwillevolvetoensureCanadianscontinuetobenefitfromastronglife insuranceindustry.
During2013-2014,OSFIcontinuedtoconsultstakeholdersinthelifeinsuranceindustry.OSFIundertookitsannualupdateoftheMinimumContinuingCapitalandSurplusRequirements(MCCSR)Guidelineduring2013,withtherevisedversioncomingintoeffectforthe2014fiscalyear.Withstakeholderinputconsidered,theguidelinewasupdatedtoclarifycertainelementsand/ortomaketheguidancemorerisk-based.AfifthQuantitativeImpactStudy(QIS)wasissuedinOctober2013togatherinformationrelatedtopotentialmethodsfordeterminingthecapitalrequirementsforkeyrisks.Industrysubmissionswerereceivedinearly2014and theresultsarebeinganalyzed.
Property and Casualty Insurance Companies
During2013-2014,OSFIcontinueddevelopinganewcapitalframeworkforitsstandardizedMinimumCapital
16 OSFI AnnuAl RepoRt 2013-2014
Test(MCT)approachinconsultationwiththepropertyandcasualty(P&C)insuranceindustry.OSFIissuedadiscussionpaperinMay2013outliningintendedmodificationstoitscapitalframework,aswellasaQIStoassesstheimpactoftheproposedchanges.Basedoncommentsprovidedbyvariousstakeholders,OSFImadesomeadjustmentstotheproposedcapitalframeworkandadraftMCTguidelinewasissuedinDecember2013forfurtherpublicconsultation.ThisinitiativeisinkeepingwithOSFI’slong-termplanandprioritiestoensuretheMCTremainsasensitiveandforward-lookingriskmanagementtool.
TheP&CMCTAdvisoryCommitteecontinuedtodevelopaframeworkfortheuseofcompany-specificmodelstodeterminecapitalrequirementsforP&Cinsurancecompanies.
OTHERGUIDAnCE
Own Risk and Solvency Assessment Guideline
Inordertostrengthentheinsuranceindustry’senterprise-wideriskmanagementprocess,innovember2013,afterpublicconsultation,OSFIissueditsfinalguidelinesforfederallyregulatedlifeinsurersand
propertyandcasualtyinsurers:GuidelineE-19:OwnRiskandSolvencyAssessment(ORSA)andGuidelineA-4:RegulatoryCapitalandInternalCapitalTargets.
Thesetwoguidelinesrequireinsurerstoconductacomprehensiveforward-lookinginternalassessmentthatincludesidentifyingmaterialrisks,assessingtheadequacyoftheirriskmanagementanddeterminingcurrentandlikelyfuturesolvencypositions.Theseassessmentsaretobedoneinamannerproportionatetothenature,scaleandcomplexityof theinsurers’ownbusinessandriskprofile.Theseguidelinesassistinsurersinself-assessingtheadequacyoftheinsurers’internalcapitalpositionand ifitislikelytoremainsointhefuture.
Mortgage Insurance Underwriting
OSFIissuedGuidelineB-20onResidentialMortgageUnderwritingPracticesandProceduresinJune2012.Followingreleaseoftheguideline,OSFIindicatedthatitwouldfollowupwithaseparateguidelineonmortgageinsuranceunderwriting.During2013-2014,OSFIdevelopedtheunderwritingguideline,B-21,withadraftforcommentissuedinApril2014andthefinalversionanticipatedinthefallof2014.
Christa Sanders, Senior Supervisor VancouverRegionalOfficeSupervisionSector
Michael Chan, Senior Supervisor VancouverRegionalOfficeSupervisionSector
17 OSFI AnnuAl RepoRt 2013-2014
Anti-Money Laundering (AML) and Anti-Terrorism Financing (ATF)
Attheinternationallevel,workonstrengtheningthefinancialsystemagainstmoneylaunderingandterrorismfinancingisledbytheFinancialActionTaskForce(FATF).During2013-2014,OSFIcontributeditsAML/ATFsupervisoryexperiencetothedevelopmentofFATFguidanceonmoneylaundering/terroristfinancingrisksandriskmanagement.AsamemberoftheBaselCommitteeonBankingSupervision’sAMLExpertsGroup,OSFIparticipatedinupdatingandpublishingguidanceonAML/ATFriskmanagement.
OSFIisalsoamemberofthePublic/PrivateSectorAdvisoryCommittee(PPSAC),establishedbytheDepartmentofFinanceforongoingdiscussionswiththeprivatesectoronCanada’sAML/ATFregime.Duringtheyear,OSFImadeapresentationonitsapproachtoML/TFriskmanagementforthebenefitof thePPSAC.
During2013-2014,OSFIcontinueditsAML/ATFsupervisoryassessmentprogramandregularfollow-upworkatawidevarietyoflargeandsmallfinancialinstitutions.AsAML/ATFprogramshavebecomemoremature,wehaverespondedwithagreateremphasisonmonitoringimprovementstoFRFIs’AML/ATFcontrols.Weidentifiedissuesrelatedtofinancialinstitutions’abilitytoidentifyhighriskcustomers,applyenhancedscrutinytothemandtheiractivities,andprovideeffectiveauditingoftheirprograms.OSFIfurtherintensifieditsprocessesrelatingtothereviewofAML/ATFriskassessmentsandproceduresrequiredofthoseapplyingtoestablishnewFRFIs.
OSFIcontinuedtoshareAML/ATFsupervisoryfindingswiththeFinancialTransactionsandReportsAnalysisCentreofCanada(FInTRAC)asauthorizedundertheOSFIAct.During2013-2014,OSFIandFInTRACsuccessfullyrolledouttheirconcurrentexaminationmethodology,designedtostreamlineprocessesandreducethesupervisoryburdenon FRFIs.
Viaitswebsite,OSFImaintaineditsroleasleadcommunicatorinhelpingtoensurethattheCanadianfinancialsectorispromptlynotifiedofsanctionsimposedbytheUnitednationsSecurityCouncilandtheGovernmentofCanadaondesignatedindividualsandorganizations.OSFIisparticipatingininter-departmentaldiscussionsaimedatstreamliningthepublicationprocessandmakingiteasierforthefinancialsectortoobtaininformationquicklyon sanctionedentitiesandindividuals.
inteRnational activities
InternationalorganizationsplayakeyroleinthedevelopmentofregulatoryframeworksforbanksandinsurersandOSFIisanactiveparticipantinanumberofthesegroups.
Financial Stability Board
TheFinancialStabilityBoard(FSB)wasestablishedinApril2009tocoordinate,attheinternationallevel,theworkofnationalfinancialauthoritiesandinternationalstandardsettingbodies.Itdevelopsandpromotestheimplementationofeffectiveregulatory,supervisoryandotherfinancialsectorpolicies.
CanadianrepresentationontheFSBissharedbytheDepartmentofFinance,theBankofCanadaandOSFI.During2013-2014,OSFIcontinueditsinvolvementwiththeFSBthroughmembershipontheFSBPlenary,SteeringCommittee,StandingCommitteeonSupervisoryandRegulatoryCooperation,andRegionalConsultativeGroupfortheAmericas.OSFISuperintendentJulieDicksonchairedtheSupervisoryIntensityandEffectivenessgroup,whichcontinuestoconductsignificantworkinrelationtothesupervisionofsystemicallyimportantfinancialinstitutions.
SomeoftheworkinwhichOSFIanditsCanadianpartnersparticipatedduring2013-2014included:
• actionstostrengthentheintensityandeffectivenessofthesupervisionofsystemicallyimportantfinancialinstitutions
• actionstostrengthenoversightandregulationofshadowbanking
• worktoimplementtheG20financialsectorreforms,includingintheareasofresolutionregimesandover-the-counterderivatives
Basel Committee on Banking Supervision
OSFIisanactivememberoftheBaselCommitteeonBankingSupervision(BCBS),whichprovidesaforumforinternationalrulemakingandcooperationon bankingsupervisorymatters.
TheBCBSprovidesregularupdatesontheprogressofmembercountriesinimplementingBaselstandards.OSFIhasactivelysupportedtheinternationalworkdonetodeterminewhetherinternationallyactivebanksarecalculatingtherisk-weightedassetsportionofminimumcapitalratiostandardsinaconsistentmanner.
18 OSFI AnnuAl RepoRt 2013-2014
In2013-2014,OSFIparticipatedinquantitativeimpactstudiesandmultipleworkstreamson:liquidity,additionalcapitaladequacyreforms,afundamentalreviewofcapitalrulesfortradingbookactivitiesandthedesignofappropriatelimitsonconcentratedcreditexposurestosinglecustomers.
OSFIalsostrengthenedrelationshipswithforeignsupervisorsduring2013-2014byparticipatingintheRegulatoryConsistencyAssessmentProgramme(RCAP)ofAustralia,SwitzerlandandSingapore.TheRCAPbringstogetherteamsdrawnfromtheBaselCommitteecountriestoreviewnationalimplementationofBaselminimumprudentialstandards,startingwiththestandardforminimumcapital.ACanadaRCAPassessmenttookplaceinlate2013(resultstobepublishedbyBCBSinJune2014),andOSFIisleadinganEU-RCAPcurrentlyunderway.Inadditiontotheseefforts,OSFItookaleadershiproleinbenchmarkingstudiestogaugeconsistencyacrossjurisdictionsforthetreatmentofrisk-weightedassetsinthedeterminationofcapitalratiosofglobalbanks.Thisworkisbeingconductedwiththegoalofachievingmoreconsistentimplementationofinternationalrisk-basedcapital standards.
International Accounting and Auditing Standards
SinceallFRFIsinCanadaarerequiredtofollowInternationalFinancialReportingStandards(IFRS)andInternationalStandardsonAuditing(ISA),OSFIinterpretsandassessesinternationalrulesthatmayapplytoCanadianfinancialinstitutions.OSFIworkswiththeInternationalAccountingStandardsBoard(IASB)andInternationalAuditingandAssuranceStandardsBoard(IAASB)throughactiveparticipationandleadershipintheAccountingExpertsGroupoftheBCBSandtheAccountingandAuditingIssuesSubcommitteeoftheInternationalAssociationofInsuranceSupervisors(IAIS).In2013-2014,OSFIworkedthroughtheBCBSandtheIAIStoprovideitspositionson:
• IASBrevisedExposureDraft:InsuranceContracts
• IASBDiscussionPaper:AReviewoftheConceptualFrameworkforFinancialReporting
• IASBExposureDraft:FinancialInstruments:ExpectedCreditLosses
• IAASBExposureDraft:ReportingonAuditedFinancialStatements:ProposednewandRevisedInternationalStandardsonAuditing
Inaddition,OSFIcontributedtofinalizationoftheBCBSguidanceentitledExternalAuditofBanks,whichsetsoutsupervisoryexpectationsregardingauditqualityandhowitrelatestotheexternalauditor’sworkinabank.
Activeparticipationinthedevelopmentofthesestandardspromotesasetofhigh-qualityglobalstandardsandenhancesourunderstandingofkeyIFRSandISAthatimpactFRFIs.Significantchangestoaccountingstandardsrequireearlyinvolvementandcloseconsultationandcommunicationwithstandardsetters,otherregulators,andbothinternationalanddomesticfirms.OSFIcollaboratescloselywithallstakeholdersaskeyaccountingandauditingstandardsaredeveloped.
International Association of Insurance Supervisors
OSFIparticipatesintheworkoftheInternationalAssociationofInsuranceSupervisors(IAIS),whichrepresentstheinsuranceregulatorsandsupervisorsofapproximately140countries.IAISobjectivesaretocontributetotheimprovedsupervisionoftheinsuranceindustryfortheprotectionofpolicyholdersworldwide,topromotethedevelopmentofwell-regulatedinsurancemarketsandtocontributetoglobalfinancialstability.
OSFIisamemberoftheIAISExecutive,TechnicalandFinancialStabilityCommittees,theSupervisoryForumandseveralsubcommittees.TheIAIShasbeenworkingonthedevelopmentofasolvencyandsupervisorycommonframeworkforinternationallyactiveinsurancegroups(ComFrame)since2010.OSFIhasbeenengagedinthedevelopmentofComFramethroughmembershipontheSolvencyandInsuranceGroupsSubcommittees.InOctober2013,theIAISannouncedplanstodeveloparisk-basedglobalinsurancecapitalstandardby2016withfullimplementationtobeginin2019.TheIAISwillalsodevelopabasiccapitalrequirementtobereadyforimplementationbyglobalsystemicallyimportantinsurers(G-SIIs)inlate2014.ByjoiningboththeHighLossAbsorbencyDraftingGroupandtheFieldTestingTaskForce,OSFIisplayingakeyroleinthedevelopmentoftheseveryimportantprojects.
AsamemberoftheFinancialStabilityCommittee,OSFIisparticipatinginthedevelopmentofamethodologytoassesswhich,ifany,reinsurancecompaniesmaybeglobalsystemicallyimportantinsuranceinstitutionsandthesupervisorymeasuresthatwouldapplytothosesoidentified.ThisIAISinitiativewillextendthrough2014.
19 OSFI AnnuAl RepoRt 2013-2014
ThroughmembershipontheAccountingandAuditingIssuesSubcommittee,OSFIcontinuestomonitorkeydevelopmentsandcontributetointernationalpolicyworkonissuesofmainconcerntoOSFIsuchastheIASB’skeyinsuranceproject:IFRS4InsuranceContracts(PhaseII).
Joint Forum
TheJointForum,establishedin1996bytheBCBS, theIAISandtheInternationalOrganizationofSecuritiesCommissions(IOSCO),workstoachieveconsistencyofsupervisoryapproachestoissuesofcommoninterestacrossfinancialsectorsandnationalborders.
In2013-2014,theJointForumwasengagedinanumberofreviewsflowingfromthefinancialsectorreformsagendaoftheG20,whichincludesstrengtheningtheglobalfinancialsystemthroughmoreeffectiveoversightandsupervision.OSFIwasinvolvedinthedevelopmentofthefollowingreports:
• Pointofsaledisclosureintheinsurance,bankingandsecuritiessectors–Thisconsultativedraft
report(August2013)identifiesandassessesdifferencesandgapsinregulatoryapproachestopointofsale(POS)disclosureforinvestmentandsavingsproductsacrossthefinancialsectors.
• Mortgage insurance: market structure, underwriting cycle and policy implications –Thisfinalreport(August2013)examinestheinteractionofmortgageinsurerswithmortgageoriginatorsandunderwriters,andmakesasetofrecommendationsdirectedatpolicymakersandsupervisors.
• Longevity risk transfer markets: market structure, growth drivers and impediments, and potential risks –Thisfinalreport(December2013)focusesattentionontherisksandissuesrelatedtoemerginglongevityrisktransfermarketssothatglobalpolicymakersandsupervisorscanremainaheadofthecurveasthesemarketscontinuetogrow.
OSFIalsomaintaineditsinvolvementwithanumberofotherinternationalgroups,includingtheIntegratedFinancialSupervisorsandtheAssociationofSupervisorsofBanksoftheAmericas.
Catherine Screeton, Administrative CoordinatorAnti-MoneyLaunderingandComplianceDivisionSupervisionSector
Rose Cosme, Human Resources Advisor HumanResourcesandAdministrationCorporateServicesSector
20 OSFI AnnuAl RepoRt 2013-2014
approvals and PrecedentsTheBank Act,Trust and Loan Companies Act, Insurance Companies Act, andCooperative Credit Associations Act sometimesrequirefederallyregulatedfinancialinstitutions(FRFIs)toseekregulatoryapprovalfromtheSuperintendentofFinancialInstitutionsortheMinisterofFinance(afterreceivingtherecommendationoftheSuperintendent),priortoengagingincertaintransactionsorbusinessundertakings.
RegulatoryapprovalsarealsorequiredbypersonswishingtoincorporateaFRFI,andbyforeignbanksorforeigninsurancecompanieswishingtoestablisha presenceortomakecertaininvestmentsinCanada.OSFIadministersaregulatoryapprovalprocessthatisprudentiallyeffective,responsiveandtransparent.OSFI’sApprovalsteamensuresthatrecommendationsmadetotheSuperintendentandtotheMinisterfollowtherequirementssetoutinthestatutes.
In2013-2014,OSFIprocessed199applicationsofwhich183wereapproved(individualapplicationsoftencontainmultipleapprovalrequests).The183approvedapplicationsinvolvedatotalof406approvals,290ofwhichweregrantedbytheSuperintendentand116bytheMinister.Thisrepresentsadecreaseincompletedapplicationsoverthepreviousyear,when214applicationsinvolving462approvalswereprocessed.Mostapplicationsfor2013-2014relatedtobanks(40%)andpropertyandcasualtyinsurers(38%).(See figure 1)
FIGURE 1ApprovedApplicationsbyIndustry2013-2014
80
70
60
50
40
30
20
10
0 Bank t&l/coop* life P&c
Num
ber
*TrustandLoan/CooperativeAssociations
in 2013-2014, oSfi processed 199 applications of which 183 were approved, involving 406 approvals, and 16 were withdrawn.
Themostcommonapplicationsreceivedfromdeposit-takinginstitutionsrelatedtopurchasesorredemptionsofsharesordebentures,assettransactionsinexcessof10%andsubstantialinvestments.Applicationsreceivedfrominsurancecompaniesrelatedmainlytoreinsurancewithrelatedunregisteredreinsurers,amendmentstoorderstoinsureinCanadarisks,andnon-cashconsiderationforshares.
During2013-2014,letterspatentweregrantedincorporatingRogersBankandRedBrickBankasdomesticbanks,andcontinuingtwofederalcompaniesasbanks:TheEquitableTrustCompanyandContinentalCurrencyExchangeCorporation.Inaddition,ordersauthorizingtheestablishmentofaforeignbankbranchinCanadawereissuedtoTheRoyalBankofScotlandplc,BnPParibasandChinaConstructionBank,andordersauthorizingtheestablishmentofaforeigninsurancebranchinCanadawereissuedtoAXAArtInsuranceCorporation,IronshoreInsuranceLtd.,StarrInsurance&ReinsuranceLimited,andBritishInsuranceCompanyofCayman.
Uponrequest,OSFIalsoprovidesadvancecapitalconfirmationsontheeligibilityofproposedcapitalinstruments.Atotalofsevensuchopinionsandvalidationswereprovidedin2013-2014,comparedto 17thepreviousyear.
GUIDAnCEAnDEDUCATIOnInkeepingwiththeobjectiveofenhancingthetransparencyofOSFI’slegislativeapprovalprocessandpromotingabetterunderstandingofourinterpretationofthefederalfinancialinstitutionstatutes,OSFIdevelopsandpublisheslegislativeguidanceincludingadvisories,rulings,andtransactioninstructions.In2013-2014,OSFIpublishedrevisedversionsofthefollowingtransactioninstructions:
• ReinsurancewithanUnregisteredRelatedReinsurer
• GuideforIncorporatingBanksandFederallyRegulatedTrustandLoanCompanies
• GuideforIncorporatingFederallyRegulatedInsuranceCompanies
• EstablishmentofanInsuranceBranch
• AcquisitionofControlof,oraSignificantInterestin, aFRFI
21 OSFI AnnuAl RepoRt 2013-2014
• SubstantialInvestmentsRequiringSuperintendentApproval-PermittedEntities
• SubstantialInvestmentsRequiringMinisterialApproval-PermittedEntities
• AssetTransactionsGreaterthan10%ofAssets
OSFIhasperformancestandardsestablishingtimeframesforprocessingapplicationsforregulatoryapprovalandforotherservices,allofwhichweresurpassedduring2013-2014.MoreinformationonserviceperformancestandardscanbefoundonOSFI’swebsite.
Natalie Young, Administrative Coordinator ApprovalsandPrecedentsRegulationSector
Neville Arjani, Research SpecialistResearchDivisionRegulationSector
22 OSFI AnnuAl RepoRt 2013-2014
federally regulated private penSion planS
OSFIsupervisesfederallyregulatedprivatepensionplansandintervenesinatimelymannertoprotectmembersandbeneficiariesofsuchpensionplansfrom
loss,whilerecognizingthatplanadministratorsareultimatelyresponsibleandthatfundingdifficultiescanresultinalossofbenefits.
Approximately6%ofprivatepensionplansinCanadaarefederallyregulated(StatisticsCanada
dataasatJanuary2012).AsatMarch31,2014,1,234privatepensionplanswereregisteredunderthePension Benefits Standards Act,1985 (PBSA),coveringover639,000employeesinfederallyregulatedareasofemployment,suchasbanking,inter-provincialtransportationandtelecommunications.BetweenApril1,2013andMarch31,2014,federallyregulatedprivatepensionplanassetsincreasedby10%,toavalueofapproximately$171billion(see figure 2).
Laurence Frappier, ActuaryPublicPensionsOfficeoftheChiefActuary
Gordon Mosher, Senior Supervisor PrivatePensionPlansDivisionRegulationSector
23 OSFI AnnuAl RepoRt 2013-2014
FIGURE 2FederallyRegulatedPrivatePensionPlansbyType(last4years)*
andoffereddefinedcontributionarrangementsinstead.Thistrendappearslikelytocontinue,withdefinedcontributionarrangementsbecominganincreasinglyimportantpartoftheprivatepensionplanenvironment.
RISkASSESSMEnT,SUPERVISIOnAnD InTERVEnTIOn
In2013-2014,asthefinancialpositionofpensionplansimproved,OSFIfocuseditspensionplansupervisionactivitiesongeneralriskmanagement,includingplangovernance.Inaccordancewithitsriskassessmentframework,OSFImonitoredpensionplanassetmanagementandencouragedplanadministratorstoimplementgoodgovernancepractices,suchasdocumentingadministrativeprocesses,keyactionsanddecisions.
2011 2012 2013 2014
Total Plans 1,396 1,354 1,234 1,234
DefinedBenefit 360 358 347 335
Combination 95 94 100 111
DefinedContribution 941 902 787 788
Total Membership 647,000 646,000 639,000 639,000
DefinedBenefit 376,000 378,000 358,000 353,000
Combination 146,000 144,000 154,000 162,000
DefinedContribution 125,000 124,000 127,000 124,000
Total Other Beneficiaries - - 420,000 430,000
DefinedBenefit - - 265,000 268,000
Combination - - 142,000 147,000
DefinedContribution - - 13,000 15,000
Total Assets $132 billion $142 billion $155 billion $171 billion
DefinedBenefit $93billion $102billion $104billion $112billion
Combination $34billion $35billion $46billion $54billion
DefinedContribution $5billion $5billion $5billion $5billion
*asatMarch31st
PRIVATEPEnSIOnEnVIROnMEnTDuring2013,federallyregulatedprivatepensionplansbenefitedfromstrongequitymarketreturnsandhigherdiscountratesusedtovalueplanliabilities.Thesepositivefactors,combinedwithspecialpaymentsmadebyemployersduringtheyear,contributedtoasignificantimprovementinthesolvencypositionsofdefinedbenefitplansin2013.Althoughfundingpressuresareexpectedtoeaseformostfederallyregulatedprivatepensionplansin2014,theeffectwillbemoderatedbythefactthatminimumrequiredsolvencyspecialpaymentsarebasedonsolvencyratiosaveragedoverthreeyearsinordertoreducefundingvolatility.
Inrecentyearssomeemployershaveclosedtheirdefinedbenefitplanstonewmembers,ceasedfurtherbenefitaccrualsforexistingmembers,
as at March 31, 2014, there were 1,234 private pension plans registered under the Pension Benefits standards act, 1985, covering over 639,000 employees. total other Beneficiaries data is available only as of 2013. the drop from 1,354 plans in 2012 to 1,234 plans in 2013 was largely due to a Supreme court of canada decision that affected the jurisdiction of 110 first nations pension plans.
24 OSFI AnnuAl RepoRt 2013-2014
Approximately47%offederallyregulatedprivatepensionplanassetsareinvestedinequity,40%indebtinstrumentsand13%indiversifiedandotherassets.Equitiesproducedstrongreturnslastyear,compensatingforthenegativeresultsondebtinstruments.Investmentreturnsforfederallyregulatedprivatepensionplanswere12%in2013comparedto9%in2012.
Risk Assessment
OSFI’sriskassessmentsystemanalysesinformationfrompensionplanfilingsandothersourcesandgenerateskeyriskindicatorsforeachpensionplanregisteredwithOSFI,therebyenablingearlyidentificationofissues.Additionally,OSFIconductsin-depthriskassessmentreviewsofplansidentifiedashigherrisk.
Asplansofferingcapitalaccumulationprovisionsarematuringandgrowinginnumberandsize,OSFIhasundertakenareviewtoensurethatithasadequateearlywarningsignalsinplaceregardingrisksforthese plans.
Solvency Testing
OSFItypicallyrunsatestonasemi-annualbasistoestimatesolvencyratios(ratioofassetsoverliabilitiesonaplanterminationbasis)forthedefinedbenefitpensionplansitregulates.ThistestprovidesOSFIwithimportantinformationthatenablesearlierinterventioninhigher-riskpensionplans.AtDecember31,2013,theaverageestimatedsolvencyratio(ESR)forallplanswas0.98,upfrom0.83atyear-end2012 (see figure 3).ESRscalculatedbyOSFIatyear-end2013showedthatapproximately61%ofalldefinedbenefitplanssupervisedbyOSFIwereunderfunded(downfrom90%in2012),meaningtheirestimatedliabilitiesexceededassets,onaplantermination basis.
On-Site Examinations
Aspartofitsrisk-basedsupervisoryapproach,OSFIconductson-siteexaminationsofselectedpensionplanstogatheradditionalinformationandbetterassesstheplan’squalityofriskmanagement.During2013-2014,OSFIperformed15on-siteexaminations,whichwerefocusedonplanadministration,includinggovernance,assetmanagement,andcommunicationtomembers.Certainplansconsideredmoremature(i.e.thathavealargerproportionofretireescomparedtoactivemembership)wereselectedforexaminationtoreviewissuesincludingpensionfundassetmixallocationandretireeauditprocesses.
FIGURE 3DefinedBenefitPlans’EstimatedSolvencyRatio(ESR)Distribution(past8years)
1.15
1.05
0.95
0.85
0.75
dec Jun dec Jun dec Jun dec Jun dec Jun dec Jun dec Jun dec Jun dec '05 '06 '06 '07 '07 '08 '08 '09 '09 '10 '10 '11 '11 '12 '12 '13 '13
the average eSr increased from 0.83 to 0.98 since year-end 2012.
Watch List
Pensionplansfacinghigherriskduetotheirfinancialcondition,planmanagementorforotherreasonsareplacedonawatchlistandcloselymonitored.ThenumberofwatchlistplansatMarch31,2014decreasedto92from128atMarch31,2013.Ofthe92plans,80weredefinedbenefitplansand12weredefinedcontributionplans.Duringthecourseof2013-2014,14newplanswereaddedtothewatchlistand50wereremoved.Althoughtheestimatedsolvencyratio(ESR)asatDecember31,2013hasimprovedsubstantiallycomparedtotheESRasatDecember31,2012,thewatchlistwilldecreaseasaresultofimprovedsolvencypositionsonlywhensolvencyimprovementsareconfirmedbyfiledvaluationreports.
Intervention
OSFIstrivestoprotectmembers’benefitsthroughcooperationwithplanadministratorsandemployersbeforeexercisingitspowerstoenforcelegislativerequirements.In2013-2014,OSFIinterventionswithrespecttohigh-riskpensionplansincludedissuingadirectionofcompliancerequiringanemployertoremitoutstandingcontributionsand,inanothercase,restrictingportabilityofbenefitsinordertostoptheimpairmentofapensionfund.
RULESAnDGUIDAnCE
Pooled Registered Pension Plans (PRPPs)
ThefederalPooled Registered Pension Plan ActanditsassociatedregulationscameintoforceonDecember14,
25 OSFI AnnuAl RepoRt 2013-2014
2012.OSFI’sresponsibilitieswithrespecttothisnewtypeofpensionplanincludelicensingPRPPadministrators,registeringPRPPsandprovidingongoingsupervision.
Pension Industry Outreach
InMarch2014,OSFIjoinedtheCanadaRevenueAgencyinpresentingajointwebconferenceor“webinar”onPRPPs,focusingontherequirementsandproceduresforregisteringaPRPPwithOSFIandwiththeCanadaRevenueAgency.
Inordertoreachagreaternumberofstakeholdersacrossthecountry,OSFIishostingwebinarsin2014tocommunicaterecentdevelopmentsaffectingfederalpensionplansitregulates,aswellasOSFI’sexpectations,toplanadministrators,advisorsandotherstakeholders.Thesereplacetheannualindustry forum.
Guidance
Inkeepingwiththeobjectivesofpromotingprudentpracticesandatransparentregulatoryframework,OSFIregularlyprovidesguidancetoplanadministratorsonlegislativerequirementsandOSFI’sexpectations.InAugust2013,OSFIissuedaDraftPolicyAdvisoryonLongevitySwapsandLongevityInsuranceforcomment.ThedraftAdvisoryprovidesguidancetofederallyregulateddefinedbenefitpensionplansthatareconsideringenteringthistypeofcontractasameansofhedginglongevityrisk.TheAdvisoryisexpectedtobeissuedinfinalformin2014.Additionally,OSFIreleasedarevisedInstructionGuideforthePreparationofActuarialReportsforDefinedBenefitPensionPlansinMarch2014.keyupdatesinthislatestversionoftheInstructionGuidecoverrecentchangestotheCanadianInstituteofActuariesStandardsofPracticeandOSFI’spositionregardingalternativesettlementmethodsfor solvency valuations.
InfoPensions
OSFIpublisheditsbi-annualnewsletterInfoPensions inMayandnovember2013.Thisnewsletterincludesannouncements,policyinterpretationsandremindersonissuesrelevanttofederallyregulatedprivatepensionplansandtheirstakeholders.BasedontheresultsofasurveyofInfoPensionsreadersin2012,OSFItookstepsin2013toincreasestakeholders’awarenessofthenewsletterandtoimproveitsusefulnesstoreaders.Theseincludedanupdatedformat,improvedvisibilityontheOSFIwebsite,andthesolicitation
ofongoingfeedbackandtopicsuggestionsfromplan administrators.
APPROVALSFederallyregulatedprivatepensionplansarerequiredtoseekapprovalfromtheSuperintendentforseveraldifferenttypesoftransactions,includingplanregistrationsandterminations,assettransfersbetweenregistereddefinedbenefitpensionplans,refundsofsurplus,andreductionsofaccruedbenefits.During2013-2014,thenumberoftransactionsrequiringtheSuperintendent’sapprovalincreasedconsiderablydueinlargeparttoanincreaseinthenumberofrequeststoreduceaccruedbenefits.OSFIprocessed104applicationsforapprovalandreceived89newrequests,comparedto55processedapplicationsand77newrequestsin2012-2013.Thirty-onenewplanswereregisteredwithOSFIin2013-2014(12definedbenefitplansand19definedcontributionplans),while21plansappliedforplantermination(9definedbenefitplansand12definedcontributionplans).
Inadditiontotheapprovalsnotedabove,OSFIisresponsibleforreviewingapplicationsfrom,issuinglicencesto,andregisteringPRPPsforadministratorsunderthePooled Registered Pension Plans Act.In2013-2014,OSFIissuedfivePRPPlicences;noPRPPswereregistered.AcorporationmustholdalicencetobeaPRPPadministratorandmustregisteraPRPPbeforeitcanenterintoacontractwithanypersonstoprovideaPRPP.
26 OSFI AnnuAl RepoRt 2013-2014
FIGURE 4AssetBreakdown*ofPensionPlansRegulatedbyOSFI
($ millions) 2012 2013
Cash $1,159 0.8% $1,266 0.7%
Debt Securities
ShortTermnotes,OtherTermDeposits 4,812 3.1% 5,676 3.3%
GovernmentBonds 39,617 25.5% 36,681 21.4%
CorporateBonds 12,010 7.8% 12,606 7.4%
MutualFunds-Bonds,CashEquivalent&Mortgage 10,530 6.8% 11,883 6.9%
MortgageLoans 627 0.4% 780 0.5%
GeneralFundofanInsurer 172 0.1% 195 0.1%
Total Debt Securities 67,768 43.7% 67,821 39.6%
Equity
SharesinInvestment,RealEstateorResourceCorporation 4,422 2.9% 4,275 2.5%
CommonandPreferredShares 45,825 29.5% 52,710 30.8%
StockMutualFunds 16,496 10.6% 19,825 11.5%
RealEstateMutualFunds 1,103 0.7% 1,504 0.9%
RealEstate 2,647 1.7% 2,922 1.7%
Total Equity 70,493 45.4% 81,236 47.4%
Diversified and Other Investments
BalancedMutualFunds 6,220 4.0% 5,938 3.5%
SegregatedFunds 2,702 1.7% 2,825 1.7%
HedgeFunds 2,301 1.5% 4,879 2.9%
PrivateEquity 776 0.5% 1,272 0.7%
Infrastructure 1,855 1.2% 2,059 1.2%
MiscellaneousInvestments 5,243 3.4% 6,528 3.8%
Total Diversified and Other Investments 19,097 12.3% 23,501 13.8%
Other Accounts Receivables (net of liabilities) (3,372) -2.2% (2,575) -1.5%
TOTAL NET ASSETS 155,145 100.0% 171,249 100.00%
*Representsassetdistributionasreportedinthefinancialstatementsofpensionplansduringrespectiveyears.
27 OSFI AnnuAl RepoRt 2013-2014
office of the chief actuary
TheOfficeoftheChiefActuary(OCA)contributestoafinanciallysoundandsustainableCanadianpublicretirementincomesystemthroughtheprovision
ofexpertactuarialvaluationandadvicetotheGovernmentofCanadaandtoprovincialgovernmentsthatareCanadaPensionPlan(CPP)stakeholders.
TheOCAprovidesstatutoryactuarialvaluationandadvisoryservicesfortheCPP,OldAgeSecurityprogram,theCanadaStudentLoansProgram,EmploymentInsuranceprogram,andpensionandbenefitsplanscoveringthefederalPublicService,theCanadianForces,theRoyalCanadianMountedPolice(RCMP),federallyappointedjudges,andMembersof Parliament.
TheOCAwasestablishedwithinOSFIasanindependentunit.TheChiefActuaryreportstotheSuperintendent;however,theaccountabilityframeworkoftheOCAmakesitclearthattheChiefActuaryissolelyresponsibleforcontentandactuarialopinionsin reportspreparedbytheOCA.
TABLInGOFTHE26THACTUARIALREPORTOnTHECAnADAPEnSIOnPLAn
TheOCAisrequiredbylawtoproduceanactuarialreportontheCPPeverythreeyears.The26thActuarialReportontheCPPasatDecember31,2012wastabledbeforeParliamentonDecember3,2013.ThistriennialreportprojectsCPPrevenuesandexpendituresovera75-yearperiodinorderto
assessthefutureimpactofhistoricalandprojecteddemographicandeconomictrends.
TheCPPprovidesprotectiontomillionsofCanadianworkersandtheirfamiliesagainstthelossofincomeduetoretirement,disabilityanddeath.In2013,morethansixandahalfmillionCanadiansreceivedCPPbenefits,withatotalvalueofapproximately$38billion.CanadianswanttofeelconfidentthattheCPPwillbeabletomeettheirneedsinfutureyears,andtheactuarialreportprovidesthemwiththemostrecentinformationonthefinancialstatusofthePlan.
Thereportfindsthatunderthe9.9%legislatedcontributionrate,assetsareprojectedtoincreasesignificantlyoverthenextdecadeascontributionrevenueisexpectedtoexceedexpendituresoverthatperiod.Assetswillcontinuetogrowthereafteruntiltheendoftheprojectionperiod,butataslowerpace,reachingalevelofsixyearsofannualPlanexpendituresby2050.Thus,despitetheprojectedsubstantialincreaseinbenefitspaidasaresultofanagingpopulation,theCPPisexpectedtobeabletomeetitsobligationsthroughouttheprojectionperiodandremainfinanciallysustainableoverthelongterm,withassetsprojectedtoaccumulateto$300billionbytheendof2020.However,thereportcautionedthatiflifeexpectanciescontinuetoincreaseatthecurrent
Jean-Claude MénardChiefActuary
28 OSFI AnnuAl RepoRt 2013-2014
rate,especiallyforages75to89,itcouldputadditionalpressureontheminimumcontributionratecausingtheratetoincreaseabove9.9%.
EXTERnALPEERREVIEWOFTHE26THCPPACTUARIALREPORT
TheOCAcommissionedanexternalpeerreviewofthe26thCPPActuarialReport.Firstintroducedin1999,externalpeerreviewofOCAactuarialreportsontheCPPbyanindependentpanelofreviewersisintendedtoensurethattheactuarialreportsmeethighprofessionalstandardsandarebasedonreasonableassumptionsinordertoprovidesoundactuarialadvicetoCanadians.
Theindependentpanel’sfindingsconfirmthattheworkperformedbytheOCAonthe26thCPPActuarialReportmeetsallprofessionalstandardsofpracticeandstatutoryrequirements,andthattheassumptionsandmethodsusedarereasonable.ThepanelalsostatedthatthereportfairlycommunicatestheresultsoftheworkperformedbytheChiefActuaryandhisstaff.
TheCanadianInstituteofActuariesstandardonassumptionsrequiresthattheassumptions,individuallyandintheaggregate,shouldbeappropriate.Thepanelhasconcludedthattheassumptionsadoptedforthe26thCPPActuarialReportarereasonable,bothindividuallyandintheaggregate,andarethereforeappropriate.
Theexternalpeerreviewofthe26thCPPActuarialReportispublic,aswerepreviouspeerreviewsoftheCPPActuarialReports,andisavailableontheOSFIwebsiteunderOfficeoftheChiefActuary.
PUBLICSECTORInSURAnCEAnD PEnSIOn PLAnS
In2013-2014,theOCAcompletedfouractuarialreportswithrespecttothepublicsectorinsuranceandpensionplans.ThesereportsweresubmittedtothePresidentoftheTreasuryBoardfortablingbeforeParliament.TheActuarialReportonthePensionPlanfortheRCMPasatMarch31,2012wastabledonOctober16,2013,theActuarialReportontheBenefitPlanfinancedthroughtheRCMP(dependents)PensionFundasatMarch31,2013wastabledonJanuary22,2014,andtheActuarialReportonthePensionPlanfortheFederallyAppointedJudgesasatMarch31,2013wastabledonMarch27,2014.Thesereportsprovideactuarialinformationtodecisionmakers,Parliamentariansandthepublic,therebyincreasing
transparencyandconfidenceinCanada’sretirementincomesystem.
ThePension Reform Act amendedthe Members of Parliament Retiring Allowances Actsothat,bynolaterthanJanuary1,2017,thetotalamountofcontributionstobepaidbymemberswillrepresent50%ofthecurrentservicecost.Inaddition,forserviceafterJanuary1,2016,theageatwhichapensionmaybepaidwithoutareductionisraisedfromage55toage65.ThisActreceivedRoyalAssentonnovember1,2012.ToreflecttheamendmentsbroughtforwardbythePensionReformAct,theOCApreparedanactuarialreportupdatingtheActuarialReportonthePensionPlanforMembersofParliament.ThereportwastabledbeforeParliamentonMay31,2013.
ACTUARIALREPORTOnTHEEMPLOYMEnTInSURAnCEPREMIUMRATE
In2013-2014,theOCApresentedtotheCanadaEmploymentInsuranceCommissionthe2014ActuarialReportontheEmploymentInsurancePremiumRatethatwastabledbeforeParliamentonOctober28,2013.Thisreportprovidestheforecastbreak-evenpremiumratefortheupcomingyearandadetailedanalysisinsupportofthisforecast.
SPECIALEVEnTS,PRESEnTATIOnSAnD SPECIALSTUDIES
Demographicchangessuchasincreasinglongevity,aswellasuncertainfutureeconomicconditions,affectthesustainabilityofpensionsystemsaroundtheworld.Throughouttheyear,ChiefActuaryJean-ClaudeMénarddeliveredpresentationsaddressingthesetopicstoarangeofaudiencesincludingtheBritishColumbiaPublicPensionConference,theSocietyofActuariesLivingto100InternationalSymposium,theBoardofDirectorsoftheCanadaPensionPlanInvestmentBoard,andtheInternationalSocialSecurityAssociationWorldSocialSecurityForum.Further,onJune18,2013,theChiefActuaryappearedbeforetheHouseofCommonsStandingCommitteeonGovernmentOperationsandEstimatesinregardtoReviewofStatutoryPrograms–PublicServicePensionPlan.
Foracompletelistofmeetings,presentationsandspeeches,seeOSFI’swebsiteunderOfficeoftheChief Actuary.
29 OSFI AnnuAl RepoRt 2013-2014
corporate ServiceS
EnHAnCInGCOMMUnICATIOnS
During2013-2014,OSFIlauncheditsredesignedwebsiteatosfi-bsif.gc.ca.Prior tocommencingworkonthenewsite,OSFIconsultedawideselection
ofvisitorsabouttheirneedsandperceptionsofourwebsite.Subsequently,changesweremadetoaddressthestatedneedsofthesewebsiteusersandtopresentinformationinamoreintuitivemanner.
Informationonthewebsiteisnowgroupedbyindustrysegment,withthemostfrequentlyaccessedinformationeasilyreachedthroughquicklinksonthefrontpage.ThisnewiterationoftheOSFIwebsiteisalsoaccessibletothosewithdisabilitieswhomayrequiretheuseofspecial‘readers’inorderto access content.
Afterlaunchofthenewsite,OSFIwebsitesubscribersweresurveyedfortheirinitialimpressions,andfeedbackhasbeenoverwhelminglypositive.
REnEWInGTECHnOLOGY AnDSYSTEMS
2013-2014wasthefourthyearofafive-yearInformationTechnologyRenewalprogram.Bytheendofthefiscalyear,anumberofsignificantsystemswererenewedandarenowinuse.Theseinclude:OSFI’snewwebsite,whichenabledimprovedinformationsearch,navigationandwebaccessibility;and,anewRegulatoryReturnsSystemandupgraded
BusinessIntelligence(BI)toolsetthatimprovedOSFI’sabilitytoanalyzeandreportonregulatoryfilingsfromdeposit-takinginstitutions.
MAnAGInGHUMAn RESOURCESCHALLEnGES
Toachieveitsstrategicoutcomes,OSFI’spriorityistohaveahigh-performingandeffectiveworkforce.
In2013-2014,ongoingrisksposedbythecurrentenvironment,bothattheleveloftheeconomyandwithinthefinancialsector,aswellasinternalfactors,continuedtohaveanimpactonhowwedoourwork.Tomitigatetheserisks,anumberofprioritieswereidentifiedthroughtheHRplanningprocessandthefollowingactionsweretakentoaddressgaps:
• ImplementedanewbusinessmodelfordeliveryofHRservices,supportedbyanupgradedHRsystem
• Updatedand/ordevelopednewHRpoliciesandguidelinestoprovideappropriateguidancetomanagersandemployeesandsupportaconsistentapplicationacrosstheorganization
• FacilitatedorganizationchangesintheSupervisionSectorforteamsresponsibleformanagingdomesticsystemicallyimportantbanks
• Completedsuccessionplansforcriticalpositionsintheeventofretirementsandtookactionstoaddressgaps
30 OSFI AnnuAl RepoRt 2013-2014
• Focusedonemployeeengagementbyconductingbi-annualemployeesurvey
• Providedlearninganddevelopmentopportunitiesforstaffacrosstheorganizationbasedonindividuallearningplansinsupportofsectorbusinessplans
• Implementedacasemanagementapproachfordealingwithcomplexdisabilityandsickleavecasesonatimelybasis
Georges Rochon, Translator/EditorCommunicationsandConsultationsDivisionCorporateServicesSector
Greguyschka Felix, Learning & Development Partner HumanResourcesandAdministrationCorporateServicesSector
31 OSFI AnnuAl RepoRt 2013-2014
financial review and highlightS
OSFIrecoversitscostsfromseveralrevenuesources.OSFIisfundedmainlythroughasset-based,premium-basedormembership-basedassessmentsonthe
financialinstitutionsandprivatepensionplansthatitregulatesandsupervises,andauser-payprogramforlegislativeapprovalsandotherselectedservices.
TheamountchargedtoindividualinstitutionsforOSFI’smainactivitiesofriskassessmentandintervention(supervision),approvalsandprecedents,andregulationandguidanceisdeterminedinseveralways,accordingtoformulassetoutinregulations.Ingeneral,thesystemisdesignedtoallocatecostsbasedontheapproximateamountoftimespentsupervisingandregulatingeachindustry.Costsarethenassessedtoindividualinstitutionswithinanindustrybasedontheapplicableformula,withaminimumassessmentforsmallerinstitutions.
Stagedinstitutionsareassessedasurchargeontheir baseassessment,approximatingtheextrasupervisionresourcesrequired.Asaresult, well-managed,lower-riskinstitutionsbearasmaller shareofOSFI’scosts.
OSFIalsoreceivesrevenuesforcost-recoveredservices.TheseincluderevenuesfromprovincesforwhichOSFIprovidessupervisionoftheirinstitutionsoncontract,federalCrowncorporationssuchastheCanadaMortgageandHousingCorporation(CMHC)whichOSFIsupervisesundertheNational Housing Act,andrevenuesfromotherfederalorganizationstowhichOSFIprovidesadministrativeservices.
OSFIcollectsAdministrativeMonetaryPenaltiesfromfinancialinstitutionswhentheycontraveneaprovisionofafinancialinstitutionsActandarechargedinaccordancewiththeAdministrativeMonetaryPenalties(OSFI)Regulations.ThesepenaltiesarecollectedandremittedtotheConsolidatedRevenueFund.Byregulation,OSFIcannotusethesefundsto reducetheamountthatitassessestheindustryin respectofitsoperatingcosts.
TheOfficeoftheChiefActuary(OCA)isfundedbyfeeschargedforactuarialvaluationandadvisoryservicesrelatingtotheCanadaPensionPlan,theOld AgeSecurityprogram,theCanadaStudentLoansProgramandvariouspublicsectorpensionandinsuranceplans,andbyaparliamentaryappropriation.
Overall,OSFIfullyrecoveredallitscostsforthefiscalyear2013-2014.
OSFI’stotalcostswere$141.9million,a$14.1million,or11.1%,increasefromthepreviousyear.Humanresourcescosts,themaindriverofOSFI’sexpenses,roseby$12.4million,or12.9%.Thiswasaresultof:a $3.0millionreversalofapayequityliabilityin2012-2013,staffingvacantpositionsacrossallsectors;thefullyearimpactofthepreviousyear’sincrementalnewhires;plannedgrowthinemployeecompensationinaccordancewithcollectiveagreementsandperformance-relatedpay,whichisavailabletoemployeesatalllevelswithintheorganization.During2012-2013OSFIsettledapayequityclaimdatingfrom1987to1997thatwaspreviouslyprovisionedfor.Asaresultofthesettlement,anamountof$3.0 million
32 OSFI AnnuAl RepoRt 2013-2014
wasreversedandrecognizedasareductioninHumanResourcesExpensesin2012-2103.
OSFI’saveragenumberoffull-timeequivalentemployeesin2013-2014was666,a4.7%increasefromthepreviousyear.OSFIendedtheyearwithanactualheadcountof697,a5.6%increasefromitsheadcountof660asatMarch31,2013.OSFIaddedresourcestosupervisetheCMHC,addressissuesrelatedtodomesticsystematicallyimportantbanks(D-SIBs)andfurtherstrengthenitsskillsetsinspecializedareassuchaseconomicresearch,creditriskandcapitalanalysisandenhanceitsabilitytoguideandsupervisefederallyregulatedfinancialinstitutionsinmanagingrisks.OSFIalsoenhanceditsspecializationinthepropertyandcasualtyandlifeinsuranceindustriestosupportmoresophisticatedrisk-sensitivecapitalrulesandtofulfillinternational commitments.
FEDERALLYREGULATEDFInAnCIAL InSTITUTIOnS
Revenues
Totalrevenuesfromfederallyregulatedfinancialinstitutionswere$127.0million,anincreaseof$13.1 million,or11.5%,fromthepreviousyear.Base assessmentsonfinancialinstitutions,whicharerecordedatanamountnecessarytobalancerevenueandexpensesafterallothersourcesofrevenuearetakenintoaccount,increasedby$11.8million,or11.0%,fromthepreviousyear.
Revenuesfromcostrecoveredservicesincreasedby$1.6million,or64.6%,fromthepreviousyearasaresultofOSFI’ssupervisionofCMHC.
Costs
Totalcostswere$127.0million,anincreaseof$13.1 million,or11.5%,fromthepreviousyear.Theincreaseisduetotheaforementionedgrowthinhumanresourcescosts.
Base Assessments by Industry
BaseassessmentsaredifferentiatedtoreflecttheshareofOSFI’scostsallocatedtoeachindustrygroup(baseassessmentsarethecostsallocatedtoanindustry,lessuserfeesandchargesandcost-recoveredservicesrevenues).Thechartbelowcomparesthecumulativegrowthofbaseassessmentsbyindustrygroupoverthepastfiveyears,using2008-2009asthebaseyear.
Theincreaseinbaseassessmentsonthedeposit-takinginstitutions(DTI)industryduring2009-2010waslargelydueto:growthinsupervisorystaffandthehiringofemployeeswithcurrentindustryexperienceincredit,marketandoperationalrisksinordertofocusmoreeffortonhigherriskinstitutionsandproducts;theearlydetectionofproblemloanportfolios;and,meetingtheincreasingnumber,frequencyandintensityofinternationalcommitments.In2010-2011and2011-2012,increasedassessmentsweredrivenbygrowthinourcomplementofspecializedskillsinresearch,creditriskandcapitaltoenhanceOSFI’sabilitytoguideandsupervisefederallyregulatedfinancialinstitutionsinmanagingrisks.Whilebaseassessmentsstabilizedin2012-2013,theyincreasedin2013-2014asaresultofworkrelatedtoD-SIBs.
Theincreaseinassessmentsonthepropertyandcasualty(P&C)insuranceindustryin2009-2010reflectsOSFI’sgreaterfocusonthissectorduetoweakeningindustryandmarketconditions,identificationofemergingrisks,focusontheIFRSimplicationsforthisindustry,anditseffortsontheMinimumCapitalTest(MCT).Theincreasein2010-2011through2013-2014reflectsOSFI’scontinuedeffortstoenhanceitsspecializationintheP&Cindustry,supportmoresophisticatedrisk-sensitivecapitalrulesandtofulfillinternationalcommitments.
Theincreaseinassessmentsonthelifeinsuranceindustryduring2009-2010isattributedtotheindustry’sshareofincrementalOSFIresourcestoaddresseconomicandmarketconditionsandemergingrisks.Theincreasein2010-2011through2013-2014reflectstheadditionofstaffwithspecificexpertiseinlifeinsurance,OSFI’seffortsondevelopinganew
Base Assessments by Industry CumulativeGrowthRatesfromFiscalYear2009
80%
60%
40%
20%
0%2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
Fiscal Year
dti industry p&c industry life industry
33 OSFI AnnuAl RepoRt 2013-2014
frameworkforthestandardizedMinimumContinuingCapitalandSurplusRequirements(MCCSR)approach,anditscontinuingfocusonreviewingandrevisingtheframeworkusedtodeterminethecapitalrequirementsforsegregatedfundguaranteeproducts.
Inadditiontotheseindustry-specificcostdrivers,othergenericfactorscausedincreasesinbaseassessmentsonallindustries:OSFI’sdevelopmentandimplementationofanInformationManagement/InformationTechnology(IM/IT)strategyandrenewalprogramfrom2010-2011to2013-2014contributedtooverallgrowthinexpendituresandassessments;and,slightdecreasesduring2010-2011and2011-2012inthenumberofstagedinstitutionsacrossallindustries,andhenceinsurchargeassessments.Thisinturnhadtheeffectofincreasingbaseassessments.In2012-2013,therewasafurtherdecreaseinthenumberofstagedinstitutions;however,surchargeassessmentsincreasedslightlyasaresultofchangestothemixofstagedinstitutions.
FEDERALLYREGULATEDPRIVATE PEnSIOn PLAnS
Assessments
OSFI’scostsforregulatingandsupervisingprivatepensionplansarerecoveredfromanannualassessmentchargedtoplans,basedonthenumberofplanbeneficiaries.PlansareassessedafeeuponapplyingforregistrationunderthePension Benefits Standards Act, 1985(PBSA)andannuallyontheduedateoftheirannualinformationreturn.
TheassessmentrateisestablishedbasedonOSFI’sestimateofcurrentyearcoststosupervisetheseplans,adjustedforanyexcessorshortfallof
assessmentsintheprecedingyears.Theestimateisthendividedbytheanticipatedassessablemembershiptoarriveatabasefeerate.Therateestablishedfor2013-2014was$10.00perassessablebeneficiary,unchangedfromthepreviousyear.Totalfeesassessedduringthefiscalyearwere$6.8million,upfrom$6.5millionin2012-2013.
Theexcessorshortfallofassessmentsinanyparticularyearisamortizedoverfiveyearsinaccordancewiththeassessmentformulasetoutinregulations.Priorto2003-2004,accumulatedsurpluseshadkeptassessmentratesdown;in2003-2004and2004-2005,however,OSFIincurredunplannedexpensesrelatedtoproblempensionplansthatdepletedthesurplusposition.SubsequentassessmentratesweresettorecovertheaccumulatedshortfallandtheannualcostofadministeringthePBSA.TherateestablishedandpublishedintheCanadaGazettefor2014-2015issetat$10.00perassessablebeneficiary,unchangedfrom 2013-2014.
Costs
ThecostofadministeringthePBSAfor2013-2014was$7.2million,anincreaseof$0.3millionor4.2%fromthepreviousyear.TheincreaseoccurredasaresultofnormaleconomicandmeritincreasesandincreasedamortizationmainlyrelatedtoRASP,anewsystemforpensionsdeployedin2012-2013.
ACTUARIALVALUATIOnAnD ADVISORY SERVICES
TheOCAisfundedbyfeeschargedforactuarialvaluationandadvisoryservicesandbyanannual
FY 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
FeesAssessed 7,927 8,578 7,866 7,949 6,477 6,842
Expenses 5,931 6,529 6,555 6,701 6,905 7,196
BasicFeeRate*perassessablemember 24.00 24.00 22.00 22.00 10.00 10.00
*Theminimumandmaximumannualassessmentperplanisderivedbymultiplyingtheannualassessmentby50and20,000respectively.Withanannualassessmentof$10.00permember,theminimumannualassessmentis$500andthemaximumis$200,000.
Fees Assessed and Expenses for Fiscal Years 2008-2009 to 2013-2014($000,exceptBasicFeeRate)
34 OSFI AnnuAl RepoRt 2013-2014
parliamentaryappropriation.Totalcostswere$7.6 million,anincreaseof$0.7millionor10.7%fromthepreviousyearduetothefullyearimpactoffillingpreviouslyapprovedpositions,andnormaleconomicandmeritincreases.The2013-2014triennialCPPreviewalsocontributestotheincreaseincosts.
CHAnGESInACCOUnTInGSTAnDARDS
OSFIappliedIAS19-EmployeeBenefits(Revised2011)(“IAS19”)retrospectivelyinthecurrentperiodinaccordancewiththetransitionalprovisionssetoutintherevisedstandard.Asaresultofthischange,actuarialgainsandlossesonDefinedBenefitPlansarenolongerrecognizedinOSFI’s Statement of Operations butinaseparateStatement of Other Comprehensive Income(OCI).Thesecoststotaling$1,251thousandin2012-2013havebeenreclassifiedtotheStatementofOCI.Thecurrentyeargainof$5thousandisalsopresentedseparatelyonthisstatement.
Historicallythesecostswerepresentedaspartofhumanresourcescostsinnote13tothefinancialstatements.Theyarestillincludedinnote12ofthefinancialstatementsinthecostsbybusinessactivity,astheyareapartofthecostofregulationandsupervisionoftheindustriesOSFIregulates.
TherehasbeennochangetotheOSFIfinancialpositionasaresultofadoptingthischangeinpresentationnorhastherebeenachangeinOSFI’stotalexpenses.However,prioryearcomparativeshavebeenrestated.FurtherdetailsaboutIAS19canbefoundinnote4totheFinancialStatements.
35 OSFI AnnuAl RepoRt 2013-2014
appendix
disclosure of information
UndertheOSFIAct,theSuperintendentisrequiredtoreporttoParliamenteachyearonthedisclosureofinformationbyfinancialinstitutionsandtheprogressmadein
enhancingthedisclosureofinformationinthefinancialservicesindustry.
OSFIpromoteseffectivedisclosureby:publishingselectedfinancialinformationonOSFI’swebsiteandthroughBeyond20/20Inc.(seetheirwebsiteformoreinformation);providingguidancetofederallyregulatedfinancialinstitutions(FRFIs)ontheirdisclosures;and,participatingininternationalsupervisorygroupswithsimilarobjectives.
Public Disclosures Associated with Building a More Stable Future
PublicdisclosuresofriskmanagementpracticesandriskexposuresmadebyFRFIshavebecomeasignificantfocustoachievingtransparency,financialstabilityandrestoringmarketconfidencesincetheglobalfinancialcrisis.Publicationsreleasedbyinternationalorganizations,suchastheFinancialStabilityBoard(FSB),theEuropeanBankingAuthority,andtheBaselCommitteeonBankingSupervision(BCBS),havestressedtheneedtoenhanceriskdisclosures.OSFIbelievesthatstrongdisclosuresandmarketdisciplinearekeyelementsforeffectivecorporategovernanceandsoundriskmanagementpracticeswithinaninstitution.
During2013-2014,OSFIfocusedonissuingguidanceonseveraldisclosureprojectsincluding:
• July2013–finaladvisoryonpublicdisclosurerequirementsinrespectofBaselIIIdefinitionof capital
• March2014–completedconsultationonrevisionstoBaselIIIdefinitionofcapitaladvisory,toaccommodateCreditValuationAdjustment(CVA)phase-in
• March2014–finaladvisoryonpublicdisclosurerequirementsforBCBSglobalsystemicallyimportantbanksframework(G-SIBFramework)
• March2014–beganconsultationonimplementingpublicdisclosurerequirementsonBCBSfinalizedframeworkforLiquidityCoverageRatio(LCR)andLeverageRatio(LR)
Financial Stability Board Guidance
In2012,theFSBestablishedtheEnhancedDisclosuresTaskForce(EDTF)toexaminehowthedisclosureofinformationonbankriskexposuresandriskmanagementpracticescouldbeenhanced.TheTaskForceconsistedofagroupofseniorprivate-sectorexecutivesfromleadingassetmanagementfirms,investorsandanalysts,globalbanks,creditratingagenciesandexternalauditors.Afterconsultingextensivelywithregulatorsandindustrygroups,theTaskForceprovided32recommendations.In2013-2014,OSFIworkedcloselywiththesixmajorbanks(designatedasdomesticsystemicallyimportantbanks)inCanadatoimplementthe32EDTFrecommendations.OSFIperformedquarterlyreviews
36 OSFI AnnuAl RepoRt 2013-2014
ofthesixbanks’disclosurestomonitortheprogressofimplementationandsawthattheymadesubstantialimprovementstoriskdisclosuresandtooksignificantstepstoachievingfullcompliancebytheendof2014.OSFIexpectsthesixmajorbankstoadoptfuturedisclosurerecommendationsinthebankingarenathatareendorsedbyinternationalstandardsettersandtheFSB,aswellasevolvingdomesticandinternationalbankriskdisclosurebestpractices.
International Accounting Standards Board (IASB)
TheIASBcontinuestoimproveseveralaccountinganddisclosurestandards.AsanactivememberintheAccountingTaskForceoftheBCBSandtheIAISAccountingandAuditingIssuesSubcommittee,OSFIparticipatesinimprovingdisclosuresinfinancialreportingunderinternationalstandards,includingworkonFinancialInstrumentsandInsuranceContracts.
OSFIiscommittedtocontinuingtoimprovepublicdisclosuresinordertopromotesafetyandsoundnessinthewayinstitutionsconductbusiness,andcontributetopublicconfidenceintheCanadianfinancialsystem.OSFIwillcontinuetosupportdisclosureinitiativesthroughitsmembershipintheBCBSandthroughreviewingourdomesticdisclosurerequirementsandpractices.