Public Accounts Committee on April 30th, 2019

[Clyde MacLellan]

We don't have in-house residence expertise, but when we deal with particular issues, such as what you're discussing, we engage with private sector counterparts who have the expertise to look at the different models and assess the potential impact. We address the potential issue by making sure that we engage those who have the experience.

[Chandra Arya, Liberal, Nepean, ON]

Thank you.

Mr. Siddall, who does the stress test? Is it in house or external consultants?

[Evan Siddall]

We do it ourselves. We have built the models with the help of external support, but we do it ourselves.

[Chandra Arya, Liberal, Nepean, ON]

Your employees do the stress test. They give you good results, which you give to the board to say everything is good.

[Evan Siddall]

OSFI oversees that work and, of course, the Auditor General did a special examination.

[Chandra Arya, Liberal, Nepean, ON]

Once again, it is done internally, your methodology.

[Evan Siddall]

That's right.

[Chandra Arya, Liberal, Nepean, ON]

You probably said that you are the only Canadian financial institution to publish these stress testing results annually. You probably said that, but you don't make public the methodology that is being used. How do we know that the stress test is good? How do we know that taxpayers will not be on the hook for anything that happens?

[Evan Siddall]

Thank you for that question. It is of course important.

In the first instance, it is important that we understand the risks that we manage, and it's proper that we stress test ourselves. Your question goes to how we know those are proper stress tests.

First, we operate three lines of defence within the company. The first line of defence is the business line. The second line of defence is a separate risk function. That risk function conducts the stress testing itself. Then our internal audit reviews that activity. On top of that, OSFI conducts an annual supervisory examination of what we do and reports to the minister responsible for the CMHC in addition to the board's review of that activity.

[Chandra Arya, Liberal, Nepean, ON]

Once again, I always thought that an independent body, independent consultants who do not do any business with you, would be conducting the stress test, but here it is. It is all done internally.

[Evan Siddall]

If I may, sir, the Office of the Superintendent of Financial Institutions is an independent body.

[Chandra Arya, Liberal, Nepean, ON]

Okay, but then, if you say that what you are doing is right and you have done all the three things you mentioned, why is the Auditor General not satisfied?

[Evan Siddall]

I think you may want to address that question to him.

[Chandra Arya, Liberal, Nepean, ON]

Absolutely. Can you give it another shot?

[The Chair, Conservative, Kevin Sorenson]

Mr. MacLellan.

[Clyde MacLellan]

If I may, I'll start, and then I'll ask Mr. Bergeron to provide more specific details.

What I'd like to do for a minute, if I may, is to take a look at our report in the bigger picture and drill down to the types of issues and questions you are rightly posing and delving into.

When we do a special examination of a Crown corporation, we look at risk management and the systems and practices around risk management. When we do that, with the help of external consultants in an area such as financial risk management at CMHC, we need to come up with an assessment as to whether or not those systems and practices have a significant deficiency.

I want members to be aware that, when we looked at CMHC as it relates to their risk management practices, we did not identify a significant deficiency. That's important because it sets a bar of acceptable practice as what we understand, and whether or not we feel there is a significant risk that the corporation can't meet its statutory obligations.

For the big picture, in this particular case, we didn't see a significant deficiency or that there is a massive failure.

[Chandra Arya, Liberal, Nepean, ON]

Does Ernst and Young have any business relationship with CMHC?

[Michel Bergeron, Managing Partner, Ernst and Young LLP]

We are the co-auditors of CMHC, independent co-auditors.

[Chandra Arya, Liberal, Nepean, ON]

Once again, you have a business relationship with CMHC, and you are also helping the Auditor General. The Office of the Auditor General could have found somebody who did not have any relationship with CMHC. Is that not right?

[Clyde MacLellan]

Let me be clear that they do not have a business relationship. Their only relationship is as co-auditors with us.

[Michel Bergeron]

Yes.

[Lissa Lamarche]

By law.

[Clyde MacLellan]

By law.

[Michel Bergeron]

Yes. As Clyde mentioned, if you look at the report on page 13 on stress testing, we do mention that the corporation has a stress testing policy in place, and they have the stress testing results to make sure they have adequate capital for business strategy. Our conclusion is there that they do have a stress testing policy. They are doing stress testing.

What we intend with our report—we feel it's important—is this. When you do ad hoc stress testing, you pick some event that you know would be major for the corporation, and the reason you do that is that, in case those events occur, then you have a plan and you are able to react to those—

[Chandra Arya, Liberal, Nepean, ON]

If you remove the—