Office of the Superintendent of Financial Institutions FUTURE-ORIENTED STATEMENT OF OPERATIONS. For the years ending March 31, 2016 and 2017

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1 FUTURE-ORIENTED STATEMENT OF OPERATIONS For the years ending March 31, 2016 and 2017

2 Statement of Management Responsibility for the Future-Oriented Statement of Operations Responsibility for the compilation, content and presentation of the Future-Oriented Statement of Operations and accompanying notes for the years ending March 31, 2016 and 2017 rests with the Office of the Superintendent of Financial Institutions (OSFI s) management, including the appropriateness of the underlying assumptions. This Future-Oriented Statement of Operations has been prepared by management based on the best information available and assumptions adopted as at November 26, 2015, in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The actual results achieved for the fiscal years covered in the accompanying Future-Oriented Statement of Operations will vary from the forecast information presented and these variations may be material. The Future-Oriented Statement of Operations has not been audited. Michele Bridges, CPA, CGA Chief Financial Officer Jeremy Rudin Superintendent of Financial Institutions Ottawa, Canada December 21,

3 FUTURE-ORIENTED STATEMENT OF OPERATIONS For the years ending March 31, 2016 and 2017 (in thousands of Canadian dollars) Note Planned Results 2017 Estimated Results 2016 Regulation and Supervision of Federally Regulated Financial Institutions Revenue 10, 11 $ 137,876 $ 131,979 Expenses 10, , ,979 Net Results before Filing Penalties Revenue - Administrative Monetary Penalties Revenue Administrative Monetary Penalties Revenue Earned on Behalf of the Government - - Net Results - - Regulation and Supervision of Federally Regulated Private Pension Plans Revenue 10, 11 7,265 6,813 Expenses 10, 11 7,265 6,813 Net Results - - Actuarial Valuation and Advisory Services Revenue 10, 11 7,414 6,881 Expenses 10, 11 8,359 7,826 Net Results (945) (945) NET RESULTS OF OPERATIONS BEFORE GOVERNMENT FUNDING (945) (945) Government Funding NET RESULTS OF OPERATIONS $ - $ - The accompanying notes form an integral part of this Future-Oriented Statement of Operations. 2

4 1. AUTHORITY AND OBJECTIVES Mandate The Office of the Superintendent of Financial Institutions (OSFI) was established by the Office of the Superintendent of Financial Institutions Act (OSFI Act) in Pursuant to the Financial Administration Act (FAA), OSFI is a division of the Government of Canada for the purposes of that Act and is listed in schedule I.1 of the Act. The Government of Canada is OSFI s parent and the ultimate controlling party of OSFI. OSFI s legislated mandate was implemented in 1996 and consists in the following: Fostering sound risk management and governance practices OSFI advances a regulatory framework designed to control and manage risk. Supervision and early intervention OSFI supervises federally-regulated financial institutions and pension plans to determine whether they are in sound financial condition and meeting regulatory and supervisory requirements. OSFI promptly advises financial institutions and pension plans if there are material deficiencies, and takes corrective measures or requires that they be taken to expeditiously address the situation. Environmental scanning linked to safety and soundness of financial institutions OSFI monitors and evaluates system-wide or sectoral developments that may have a negative impact on the financial condition of federally-regulated financial institutions. Taking a balanced approach OSFI acts to protect the rights and interests of depositors, policyholders, financial institution creditors and pension plan beneficiaries while having due regard for the need to allow financial institutions to compete effectively and take reasonable risks. OSFI recognizes that management, boards of directors and pension plan administrators are ultimately responsible for risk decisions and that financial institutions can fail and pension plans can experience financial difficulties resulting in the loss of benefits. In fulfilling its mandate, OSFI supports the government s objective of contributing to public confidence in the Canadian financial system. The Office of the Chief Actuary provides a range of actuarial valuation and advisory services, under the Canada Pension Plan Act and the Public Pensions Reporting Act to the Canada Pension Plan (CPP) and some federal government departments, including the provision of advice in the form of reports tabled in Parliament. Revenue and spending authority Pursuant to Section 17 of the OSFI Act, the Minister of Finance may spend any revenues collected under Sections 23 and 23.1 of the OSFI Act to defray the expenses associated with the operation of OSFI. The Act also establishes a ceiling for expenses at $40 million above the amount of revenue collected to be drawn from the Consolidated Revenue Fund of Canada (CRF). 3

5 1. AUTHORITY AND OBJECTIVES (continued) OSFI s revenues comprise assessments, service charges and fees. The expenses against which assessments may be charged include those in connection with the administration of the Bank Act, the Cooperative Credit Associations Act, the Green Shield Canada Act, the Insurance Companies Act, the Protection of Residential Mortgage or Hypothecary Insurance Act and the Trust and Loan Companies Act. The formula for the calculation of assessments is included in regulations. Subsections 23(1.1) and 23(5) of the OSFI Act provide that assessments may be charged for the administration of the Pension Benefits Standards Act, 1985 (PBSA, 1985) and the Pooled Registered Pension Plans Act. The assessments for the administration of pension plans subject to the PBSA are set annually in accordance with the Assessment of Pension Plans Regulations. Section 23.1 of the OSFI Act provides that the Superintendent may assess against a person a prescribed charge ( service charge ) and applicable disbursements for any service provided by or on behalf of the Superintendent for the person's benefit or the benefit of a group of persons of which the person is a member. Person includes individuals, corporations, funds, unincorporated associations, Her Majesty in Right of Canada or of a province, and a foreign government. The service charges are detailed in the regulations. Pursuant to Section 16 of the OSFI Act, Parliament has provided annual appropriations to support the operations of the Office of the Chief Actuary. 2. BACKGROUND INFORMATION This Future-Oriented Statement of Operations was authorized for issue by the Superintendent of Financial Institutions on December 21, The head office is located at 255 Albert Street in Ottawa, Ontario, Canada. OSFI s principal activities are described in Note SIGNIFICANT ASSUMPTIONS The Future-Oriented Statement of Operations has been prepared on the basis of the government priorities and the plans of the agency as described in OSFI s Report on Plans and Priorities. The significant assumptions are as follows: (a) (b) (c) (d) Expenses and revenues, including the determination of amounts internal and external to the government, are based on historical experience and trends, as well as known new requirements. The employee benefit rate in is the rate prescribed by the Treasury Board Secretariat (TBS) at the beginning of the fiscal year, while the rate for is the rate provided by TBS for the Annual Reference Level Update. Salary economic adjustments for and represent OSFI s best estimates at the time this Future-Oriented Statement of Operations was prepared. OSFI s collective agreements expired on March 31, The estimated results reflect management s estimates and assumptions at the time of preparation, including the assumption that there will be no changes to OSFI's funding model. 4

6 4. VARIATIONS AND CHANGES TO THE FORECASTED FINANCIAL INFORMATION While every attempt has been made to reasonably forecast results for the remainder of the year ending March 31, 2016 and for the year ending March 31, 2017, actual results achieved for both years are likely to vary from the forecast information presented, and this variation could be material. In preparing this Future-Oriented Statement of Operations, OSFI has made estimates and assumptions concerning the future. These estimates and assumptions may differ from the subsequent actual results. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Factors that could lead to material differences between the Future-Oriented Statement of Operations and the historical financial statements include: (a) The timing and amounts of acquisitions of property, plant and equipment and intangible assets may affect amortization expense. (b) The implementation of new collective agreements. (c) Further changes to the operating budget to respond to risks emanating from the economy, the financial system and regulatory reforms. (d) Fluctuations in the discount rate used to calculate actuarial gains/losses on the severance and sick leave liabilities. (e) Changes in OSFI's responsibilities, as determined by the Minister of Finance and Parliament. Once the Report on Plans and Priorities is tabled in Parliament, OSFI will not be updating the forecasts for any changes in financial resources made in ensuing supplementary estimates. Variances will be explained in the Departmental Performance Report. 5. BASIS OF PREPARATION The Future-Oriented Statement of Operations has been prepared on a historical cost basis and is presented in Canadian dollars because that is the currency of the primary economic environment in which OSFI operates. Statement of compliance The Future-Oriented Statement of Operations of OSFI has been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The accounting policies are based on the IFRS applicable as at September 30, 2015, and encompasses individual IFRS, International Accounting Standards ( IAS ), and interpretations made by the International Financial Reporting Interpretations Committee ( IFRIC ) and the Standing Interpretations Committee ( SIC ). The policies set out below are consistently applied to all periods presented. 5

7 6. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies of OSFI are set out below: a) Impairment of financial assets OSFI assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event ) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. For financial assets carried at amortized cost, OSFI first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If OSFI determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset s original effective interest rate. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to the Statement of Operations. b) Property, plant and equipment Property, plant and equipment are stated at historical cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Historical cost includes the costs of replacing parts of property and equipment when incurred, if the recognition criteria are met. Repair and maintenance costs are recognized in the Statement of Operations as incurred. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets as follows: Assets Leasehold improvements Furniture and fixtures Office equipment Informatics hardware Informatics software Useful Life Lesser of useful life or remaining term of the lease 7 years 4 years 3, 4 or 5 years 5 years The assets residual values, useful lives and methods of depreciation are reviewed at each financial year end, and adjusted prospectively if appropriate. 6

8 6. SIGNIFICANT ACCOUNTING POLICIES (continued) c) Intangible assets Intangible assets consist of internally developed and externally purchased software that is not an integral part to the related hardware. Following initial recognition of the development expenditure as an asset, the historical cost model is applied requiring the asset to be carried at cost less any accumulated amortization and accumulated impairment losses, if any. Intangible assets acquired separately are measured on initial recognition at cost. The cost of internally developed software consists of directly attributable costs necessary to create, produce, and prepare the software to be capable of operating in the manner intended by OSFI. OSFI holds intangible assets that have finite lives and are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method are reviewed at least at each financial year end. Amortization is calculated using the straight-line method over their estimated useful lives of five years and is recorded in the relevant expense line item depending on the business activity to which the expense pertains. Amortization of the assets begins when development is complete and the assets are available for use. They are amortized over the period of expected future benefit. Costs incurred during the pre-development stage are expensed in the period incurred. d) Impairment of non-financial assets OSFI assesses at each reporting date whether there are any internal indicators that an asset may be impaired (e.g. damaged assets or assets no longer being used). If any indication exists, or when annual impairment testing for an asset is required, OSFI estimates the asset s recoverable amount. An asset's recoverable amount is the higher of an asset s fair value less cost to sell and its value in use. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. There is no risk of not recovering the carrying amount of the asset given OSFI s ability to recover all costs from federally regulated financial institutions and federally regulated private pension plans. OSFI asseses internally developed intangible assets not yet in use for impairment on an annual basis. 7

9 6. SIGNIFICANT ACCOUNTING POLICIES (continued) e) Employee benefits i. Short-term benefits Short-term benefits are recorded in the Statement of Operations when an employee has rendered the service. Unpaid short-term compensated leave that has vested at the reporting date is accrued at the reporting date and not discounted. Short-term compensated leave expected to occur within twelve months of the reporting date is classified as short-term employee benefits. OSFI contributes to the Government of Canada sponsored Public Service Health Care Plan and Dental Service Plan for employees. These contributions represent the total obligation of OSFI with respect to these plans. ii. Post employment benefits Pension benefits Substantially all of the employees of OSFI are covered by the public service pension plan (the Plan ), a contributory defined benefit plan established through legislation and sponsored by the Government of Canada. Contributions are required by both the employees and OSFI to cover current service cost. Pursuant to legislation currently in place, OSFI has no legal or constructive obligation to pay further contributions with respect to any past service or funding deficiencies of the Plan. Consequently, contributions are recognized as an expense in the year when employees have rendered service and represent the total pension obligation of OSFI. Severance benefits On termination of employment, employees are entitled to certain benefits provided for under their conditions of employment through a severance benefits plan. The cost of these benefits is accrued as the employees render their services necessary to earn severance benefits. The severance benefits are based upon the final salary of the employee. The cost of benefits is actuarially determined as at March 31 of each year using the projected benefit method prorated on services. The obligation is unfunded. The calculation of the liability is based upon a current market discount rate which is based on the market yields at the valuation date on high quality corporate bonds and other actuarial assumptions, which represent management s best long-term estimates of factors such as future wage increases and employee departure rates. All actuarial gains (losses) are recognized in the Statement of Other Comprehensive Income in the period in which they arise. Other benefits The Government of Canada sponsors a variety of other benefit plans from which former employees may benefit upon retirement. The Public Service Health Care Plan and the Pensioners Dental Service Plan are the two major plans available to OSFI retirees. These are defined benefit plans sponsored by the Government of Canada. Contributions are required by OSFI to cover current service cost. Pursuant to legislation currently in place, OSFI has no legal or constructive obligation to pay further contributions with respect to any past service or funding deficiencies of the Plan. Consequently, contributions are recognized as an expense in the year when employees have rendered service and represent the total obligation of OSFI with respect to these plans. 8

10 6. SIGNIFICANT ACCOUNTING POLICIES (continued) iii. Other long-term benefits Sick leave Employees are eligible to accumulate sick leave until retirement or termination. Unused sick leave is not eligible for payment on retirement or termination, nor can it be used as vacation. All sick leave is an accumulating non-vesting benefit. A liability is recorded for sick leave balances expected to be taken in excess of future allotments. The cost of sick leave as well as the present value of the obligation is determined using an actuarial valuation. Any gains and losses are recognized in net results in the period in which they arise. f) Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments under operating leases (net of any incentives received from the lessor) are charged to the Statement of Operations on a straight-line basis over the period of the lease. OSFI does not have borrowing authority and therefore cannot enter into lease agreements that are classified as finance leases. OSFI has established procedures to review all lease agreements and identify if the proposed terms and conditions would result in a transfer to OSFI of substantially all the benefits and risks incidental to ownership. OSFI records the costs associated with operating leases in the Statement of Operations in the period in which they are incurred. g) Statement of Operations The format of the Future-Oriented Statement of Operations has been designed to show the revenues and expenses by each of OSFI s business lines. It is considered that this format best represents the nature of the activities of OSFI. Expenses have been disclosed by nature in Note 11 of this Future-Oriented Statement of Operations. 9

11 6. SIGNIFICANT ACCOUNTING POLICIES (continued) h) Revenue recognition OSFI recognizes revenue so as to recover its expenses. Any amounts that have been billed for which costs have not been incurred are classified as unearned on the statement of financial position. Revenue is recorded in the accounting period in which it is earned (service provided) whether or not it has been billed or collected. At the end of the period, amounts may have been collected in advance of the incurrence of costs or provision of services, or alternatively, amounts may not have been collected and are owed to OSFI. Base Assessments Revenue from base assessments is recognized based on actual costs incurred as services are charged based on cost recovery and all costs are considered recoverable. Base Assessments are billed annually based on an estimate of the current fiscal year s operating costs (an interim assessment) together with a final accounting of the previous year s assessment for actual costs incurred. Assessments are calculated prior to December 31 of each year, in accordance with Section 23(1) of the OSFI Act and the Assessment of Financial Institutions Regulations, Differences between billed estimates and actual cost incurred at the end of the period are recorded as accrued base assessments or unearned base assessments. Pension Plan Assessments are earned from registered pension plans. Assessment rates are set annually by regulation based on budgeted expenses, pension plan membership and actual results from previous years. Pension plan assessments are charged in accordance with Section 23(1.1) and 23(5) of the OSFI Act. Revenue from pension plan assessments is recognized based on actual costs incurred as services are charged based on cost recovery and all costs are considered recoverable. Differences between the amounts billed to industry and actual cost incurred at the end of the period are recorded as accrued pension plan assessments or unearned pension plan assessments. User Fees and Charges include revenue earned pursuant to the Charges for Services Provided by the Office of the Superintendent of Financial Institutions Regulations, 2002 as amended from time to time in respect of legislative approvals and approvals for supervisory purposes, and surcharges assessed to federally regulated financial institutions assigned a stage rating pursuant to the Guide to Intervention for Federal Financial Institutions. Assessment surcharges are charged in accordance with the Assessment of Financial Institutions Regulations, Revenue from user fees and charges is recognized by reference to the stage of completion of the service. Percentage of completion is measured based on actual services performed to date as a percentage of total services to be completed. Administrative Monetary Penalties are penalties levied to financial institutions when they contravene a provision of a financial institutions Act and are charged in accordance with the Administrative Monetary Penalties (OSFI) Regulations. Penalties levied are not available to reduce the net costs that OSFI assesses the industry (i.e., they are non-respendable) and are remitted to the Consolidated Revenue Fund when collected. OSFI assesses its Administrative Monetary Penalty revenue against specific criteria in order to determine if it is acting as principal or agent. OSFI has concluded that it is acting as a principal for Administrative Monetary Penalty revenue. 10

12 6. SIGNIFICANT ACCOUNTING POLICIES (continued) Cost-Recovered Services represent revenue earned from sources other than those listed above. These services are provided in accordance with the terms and conditions agreed to by the transacting parties. Revenue from costrecovered services is recognized based on actual costs incurred and all costs are considered recoverable. Revenue and the matching expenses from cost recovered services not specifically related to the Regulation and Supervision of Federally Related Pension Plans or Actuarial Valuation and Advisory Services are grouped with the Regulation and Supervision of Federally Regulated Financial Institutions on the Future-Oriented Statement of Operations. This includes costs recovered from other government entities such as the Canada Mortgage and Housing Corporation for OSFI's supervisory oversight in accordance with the National Housing Act. i) Provisions Provisions are recognized when OSFI has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the Statement of Operations. If the effect of the time value of money is material, provisions are discounted using a rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized in net results. j) Government funding Government funding, including parliamentary appropriations, is recognized where there is reasonable assurance that the funding will be received and all attached conditions will be complied with. When the funding relates to an expense item, it is recognized in net results over the period necessary to match the funding on a systematic basis to the costs that it is intended to compensate. The funding and the corresponding expense item are recognized at their gross amounts. 7. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS The preparation of OSFI s Future-Oriented Statement of Operations requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability, in which case the impact will be recognized in the financial statements of a future fiscal period. Judgments In the process of applying its accounting policies, management has made the following judgments which have the most significant effect on the amounts recognized in the Future-Oriented Statement of Operations: 11

13 7. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS (continued) Operating lease commitments OSFI as lessee Public Works and Government Services Canada (PWGSC) enters into commercial property leases for OSFI's office space and recovers such cost from OSFI. OSFI also enters into leases for certain office equipment. OSFI has determined, based on an evaluation of the terms and conditions of the arrangements, that significantly all of the risks and rewards of ownership have not been transferred to OSFI and as such accounts for these contracts as operating leases. Administrative monetary penalty revenue OSFI as principal OSFI collects administrative monetary penalties from financial institutions when they contravene a provision of a financial institutions Act. OSFI has determined that it is the principal in the arrangement and has recorded the administrative monetary penalties as revenue. Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amounts of revenues, expenses, assets and liabilities within the next financial year are discussed below: Estimated useful lives of assets The estimated useful lives of property, plant and equipment and intangible assets are based on management s intentions with respect to the asset, historical experience with the asset, internal asset management plans and other factors as determined by management. The useful lives are reviewed on an annual basis and any revisions to the useful lives are accounted for prospectively. Severance benefits The cost of the defined benefit severance plan as well as the present value of the obligation is determined using an actuarial valuation. The actuarial valuation involves making assumptions about discount rates, future salary increases, and departure rates. All assumptions are reviewed annually as at March 31. In determining the appropriate discount rate, management considers the interest rates of corporate bonds in Canada with AAA or AA ratings and with maturities matching the estimated cash flows of the severance payments. Departure rates are based on experience from the public service of Canada and include mortality, disability, termination and retirement. Future salary increases are based on expected future inflation rates in Canada. 12

14 7. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS (continued) Sick leave The cost of sick leave as well as the present value of the obligation is determined using an actuarial valuation. The actuarial valuation involves making assumptions about discount rates, future salary increases, usage rates, and departure rates. All assumptions are reviewed annually as at March 31. In determining the appropriate discount rate, management considers the interest rates of corporate bonds in Canada with AAA or AA ratings and with maturities matching the estimated sick leave usage. Departure rates are based on experience from the public service of Canada and include mortality, disability, termination and retirement. Future salary increases are based on expected future inflation rates in Canada. Discount Rates Since the estimated cash flows of the severance payments and estimated sick leave usage are unrelated, the discount rates determined above may differ. 8. RELATED PARTY TRANSACTIONS a) The ultimate parent The Government of Canada is the ultimate parent of OSFI, and has control over OSFI. b) Compensation of Key Management Personnel Key Management Personnel includes the following positions: the Superintendent, Deputy Superintendent, Assistant Superintendents, the Chief Actuary and all Senior and Managing Directors or equivalent level positions at OSFI. Total compensation forecasted to be paid to key management personnel for the years ending March 31 is provided in the table below Short-term employee benefits (including salaries) $ 13,053 $ 12,109 Post-employment benefits 5,430 4,731 Professional Services Other long-term benefits Total $ 19,430 $ 17,758 Average Number of Employees

15 8. RELATED PARTY TRANSACTIONS (continued) c) Government related entities OSFI is related, in terms of common ownership, to all Government of Canada departments, agencies and crown corporations. OSFI enters into transactions with these entities in the normal course of business and on normal trade terms. These transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. For the year ending March 31, 2016, OSFI forecasts purchases of goods and services of $34,269 ( $34,667) and earned revenue of $10,584 ( $11,296) from transactions with other government entities. Although most transactions are not individually significant, OSFI forecasts the following individually significant transactions: Entity Nature 2017 Expenditure 2016 Expenditure Treasury Board Secretariat Pension contributions, other employee benefits and other services $ 23,158 $ 22,560 Public Services and Procurement Canada Rent and other services $ 9,353 $ 9,523 Entity Nature 2017 Revenue 2016 Revenue Canada Mortgage and Housing Corporation Cost recovered services $ 3,200 $ 2,500 Employment and Social Development Canada Actuarial valuation and advisory services $ 3,974 $ 3,908 OSFI receives an annual parliamentary appropriation pursuant to Section 16 of the OSFI Act to support its mandate relating to the OCA. OSFI was granted $945 for and expects to be granted $945 for , which has been recognized into net results and shown on the Future-Oriented Statement of Operations. There are no unfulfilled conditions or contingencies attached to this appropriation. 14

16 9. EMPLOYEE BENEFITS - PENSION BENEFITS Substantially all of the employees of OSFI are covered by the public service pension plan (the Plan ), a contributory defined benefit plan established through legislation and sponsored by the Government of Canada. Contributions are required by both the employees and OSFI. The President of the Treasury Board of Canada sets the required employer contributions based on a multiple of the employees required contribution. The general contribution rate forecasted for the end of the year is % ( %). Total contributions of $10,013 ( $10,121) are expected to be recognized as an expense during the year. The Government of Canada holds a statutory obligation for the payment of benefits relating to the Plan. Pension benefits generally accrue up to a maximum period of 35 years at an annual rate of 2 percent of pensionable service times the average of the best five consecutive years of earnings. The benefits are coordinated with Canada/Québec Pension Plan benefits and they are indexed to inflation. 15

17 10. REVENUE AND TOTAL COSTS BY BUSINESS ACTIVITY Revenue by Business Activity March 31, 2017 Base Assessments Cost- Recovered Services Pension Plan Assessments User Fees and Charges TOTAL Regulation and Supervision of Federally Regulated Financial Institutions $ 131,283 $ 3,968 $ - $ 2,625 $ 137,876 Regulation and Supervision of Federally Regulated Private Pension Plans - - 7,265-7,265 Actuarial Valuation and Advisory Services - 7, ,414 TOTAL REVENUE EARNED FROM RESPENDABLE SOURCES $ 131,283 $ 11,382 $ 7,265 $ 2,625 $ 152,555 March 31, 2016 Base Assessments Cost- Recovered Services Pension Plan Assessments User Fees and Charges TOTAL Regulation and Supervision of Federally Regulated Financial Institutions $ 125,432 $ 3,803 $ - $ 2,744 $ 131,979 Regulation and Supervision of Federally Regulated Private Pension Plans - - 6,813-6,813 Actuarial Valuation and Advisory Services - 6, ,881 TOTAL REVENUE EARNED FROM RESPENDABLE SOURCES $ 125,432 $ 10,684 $ 6,813 $ 2,744 $ 145,673 16

18 10. REVENUE AND TOTAL COSTS BY BUSINESS ACTIVITY (continued) Total Costs by Business Activity Regulation and Supervision of Federally Regulated Financial Institutions Risk Assessment and Intervention $ 98,788 $ 95,636 Regulation and Guidance 26,037 24,244 Approvals and Precedents 13,051 12,099 Total 137, ,979 Regulation and Supervision of Federally Regulated Private Pension Plans 7,265 6,813 Actuarial Valuation and Advisory Services Public Sector Pension and Insurance Programs 4,308 3,874 Canada Pension Plan and Old Age Security Program 2,841 2,762 Canada Student Loans Program 1,210 1,190 Total 8,359 7,826 TOTAL COSTS $ 153,500 $ 146,618 17

19 11. REVENUE AND EXPENSES BY MAJOR CLASSIFICATION Revenue Base Assessments $ 131,283 $ 125,432 Cost-Recovered Services 11,382 10,684 Pension Plan Assessments 7,265 6,813 User Fees and Charges 2,625 2,744 Total Revenue Earned from Respendable Sources 152, ,673 Expenses Personnel 114, ,103 Rentals 12,835 12,030 Professional Services 12,827 12,834 Amortization 6,091 5,221 Travel 3,669 3,464 Communications 1,307 1,397 Information 1,225 1,226 Machinery and Equipment 675 1,189 Repairs and Maintenance Materials and Supplies Other Total Expenses 153, ,618 Net Results of Operations before Government Funding and Non- Respendable Administrative Monetary Penalties Revenue (945) (945) Government Funding Administrative Monetary Penalties Revenue - - Administrative Monetary Penalties Earned on Behalf of the Government - - Net Results of Operations $ - $ - Average Number of Employees

20 11. REVENUE AND EXPENSES BY MAJOR CLASSIFICATION (continued) Personnel Expenses Wages and salaries $ 88,772 $ 83,009 Other benefits 14,753 14,684 Post-Employment Benefits other than Severance 10,121 10,013 Other Personnel Costs Severance Benefits Total Personnel Expenses $ 114,161 $ 108, ADMINISTRATIVE MONETARY PENALTIES Administrative monetary penalties levied by OSFI are remitted to the CRF. The funds are not available for use by OSFI and are not included in the balance of the Cash Entitlement. As a result, the penalties do not reduce the amount that OSFI assesses the industry in respect of its operating costs. Refer to Note 6 (h) for further information on OSFI's accounting policy as it relates to administrative monetary penalty revenue. For the year ending March 31, 2016, OSFI is forecasting to levy $Nil ( $Nil) in administrative monetary penalties. 13. OPERATING LEASE ARRANGEMENTS OSFI enters into operating lease agreements for office space and office equipment in four locations across Canada and contracts for services. These leases have an average life of between one and seven years with no renewal option included in the contracts. There are no restrictions placed upon OSFI when entering into these leases. The forecast minimum aggregate annual payments for future fiscal years can be reasonably estimated as follows: Within one year $ 1,422 $ 8,434 After one year but not more than five years 552 1,931 More than five years - 43 Total $ 1,974 $ 10,408 Since a number of leases expire before the end of 2017 and new leases are currently under negotiation, the lease obligations due for 2017 are lower than

21 14. PARLIAMENTARY AUTHORITIES OSFI is funded mainly through assessments on the financial institutions and pension plans that OSFI regulates and supervises, and a user-pay program for selected services as explained in Note 6 (h). Revenues are accounted for on the same basis as expenses, full accrual accounting in accordance with IFRS. OSFI also receives a small parliamentary appropriation of $945 for actuarial services relating to public sector employee pension and insurance plans. The appropriation represents approximately 0.6% of OSFI s annual budget and is recognized as Government Funding in the Future-Oriented Statement of Operations. 20