Finance Committee on March 27th, 2007

[Julie Dickson]

All tax changes often lead to commentary, and this change affects not only banks but all corporations. Every time tax rules change and banks are affected.... It happens on an ongoing basis. That's the way our system works.

It doesn't really affect OSFI's work. What we would focus on mainly is, if a bank does buy an operation in another country, what does that mean for our operations in terms of supervising it? Do we have to send a team to another country? Do we know that system well? Do we know the regulator well? Those are the things we focus on. Once an acquisition is made, we step into the picture.

[The Chair, Conservative, Brian Pallister]

Thank you.

We'll continue now with Mr. Pacetti.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you, Mr. Chairman.

Thank you, Ms. Dickson. It's nice to have you before the committee.

Here's a quick question on the Office of the Chief Actuary. It's part of the OSFI, but it operates independently, I understand. Are all the costs of the chief actuary recovered?

[Julie Dickson]

Yes, most of his costs are in the form of user fees, so to speak, where he has memorandums of understanding with other government departments. When he works on Canada student loans, or CPP, or whatever, he is reimbursed by those departments for that work.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

He won't do any work for your office?

[Julie Dickson]

No.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So it just happens to be that he's under the OSFI, under your department. Does it just happen to be that way?

[Julie Dickson]

Yes.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Another quick question is on the new anti-money laundering, anti-terrorism legislation. I think the office of the superintendent testified. Is there going to be additional work for your department to undertake in order to address any of the changes that were made in that bill?

[Julie Dickson]

We've been doing a lot more work in the last four or five years. I don't think the bill would require us to increase it by a lot. What I'm more interested in is the international review that's currently being done in Canada by an international team. They're looking at what OSFI does in the anti-money laundering area.

I will be interested to see what that report says, because if the report is quite positive, it will be an indication that we're doing the right thing.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

I'm viewing it more as the question, if it's going to require some additional work on your behalf, of how you recover costs for it.

[Julie Dickson]

It would be billed to the financial institutions. We go in and look at banks and look at insurance companies and trust companies.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

What about when it's some law enforcement agency that's asking you for some work; does that not happen?

[Julie Dickson]

No, we have an agreement with FINTRAC, the financial analysis group. We do work on our own behalf, because it is part of something that—

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

No, but use the case of FINTRAC. If FINTRAC is asking you for whatever type of information they may be asking for, or even a law enforcement agency, will you not do any work for them?

[Julie Dickson]

We don't have law enforcement agencies asking us to do work for them, but with FINTRAC we have an arrangement, wherever we thought it would be more efficient if we did the work as opposed to having us and FINTRAC going in and doing the same kinds of work.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

But the cost is recovered from the financial....

Based on cost, there was talk that perhaps there was a lot of duplication of work with the Canada Deposit Insurance Corporation. I don't see any reference anywhere. I didn't bring the annual report with me, but has there been any talk about reducing the costs there, or about some reduction of duplication of work?

[Julie Dickson]

In the last few years there were a lot of initiatives; there was a lot of effort put toward reducing overlap and duplication. Now only one agency approves new entrants into the sector. It used to be both of us; now it's only OSFI. Only one agency now sets out guidelines for sound business practice. That's OSFI now; it used to be both agencies. This has represented a tremendous decrease in duplication of activities.

Last year we pursued the work a bit further and looked at whether there were some back office costs that we could further reduce by partnering. That's still something that is on the table, but at this point I don't have anything new to report.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So, there's some ongoing—

[The Chair, Conservative, Brian Pallister]

Thank you, sir.

Mr. St-Cyr.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Thank you, Mr. Chair. I have a few questions. In fact, I have three, to be precise.

In the breakdown of the program by activities, under the heading “Regulation and supervision of federally regulated financial institutions”, there is a figure in the column entitled “Capital” that amounts to almost $7 million. For the following headings of “Regulation and supervision of federally regulated private pension plans”, “International assistance” and “Office of the Chief Actuary”, there are no capital expenditures.

What does this figure of $7 million refer to exactly, and why is it categorized under the heading of regulation and supervision of federally regulated financial institutions?

[Julie Dickson]

I'll answer the part on the oversight of financial institutions. Oversight would include the cost of teams that we send into financial institutions. They will go in, meet with senior management, ask for documents, ask to see board minutes and things like that.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

My question deals strictly with capital expenditures in relation to operations. There are two columns, one column entitled “Operating” and another column entitled “Capital”. Under that column, nearly $7 million have been allocated for one single activity, that of supervising financial institutions.

I wish to know what those expenditures were made on exactly, and why there are no capital expenditures for the other activities.

[Michèle Bridges]

I can answer your question. The reason why capital expenditures are found under that activity, is because it deals mainly with investments in financial systems, as Julie Dickson was talking about, such as the Basel II Accord implementation, as well as other changes made to accounting rules. When this budget was drawn up, almost a year ago, we still had not forecast all of the necessary capital costs in relation to private pension plans. Those costs can be found under the heading of operating costs, contained in the budget that was presented.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Under operating costs?