C. Office of the Superintendent of Financial Institutions

• Author: M.H. Ogilvie
• Profession: LSM, B.A., LL.B., M.A., D.Phil., D.D., F.R.S.C. Of the Bars of Ontario and Nova Scotia Chancellor's Professor and Professor of Law, Carleton University
• Pages: 44-52

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The Office of the Superintendent of Financial Institutions (OSFI) was created by legislation in 1987⁶⁸as a result of the amalgamation of the

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Department of Insurance and the Office of the Inspector General of Banks. As their names suggest, the former had supervisory authority over insurance companies and the latter over banks. The Inspector General’s office was established in 1924, after several bank failures and amid concerns about alleged corruption in the administration of banks. OSFI was created amid similar concerns about the financial institutions sector generally following the failures of a number of trust companies in the 1980s and of two banks in 1985, the Canadian Commercial Bank and the Northland Bank.⁶⁹

It was created as a single regulatory office with oversight over all federally incorporated financial institutions and federally regulated employer-sponsored pension plans.⁷⁰

Subsequently, OSFI has also taken on the roles of providing actuarial advice to the federal government⁷¹and of conducting reviews of certain provincially incorporated financial institutions by virtue of federal-provincial agreements or by virtue of agency agreements with the Canada Deposit Insurance Corporation (CDIC).⁷²

The OSFI Act expressly provides that financial institutions and pension plans are to be regulated by the Government of Canada for the purpose of contributing to public confidence in the Canadian financial system.⁷³

The statutory objects of the office are: (i) to supervise financial institutions in order to determine whether they are in sound financial condition and comply with the law; (ii) to advise promptly a financial institution that is not in sound financial condition or legal compliance and to require its board and management to take corrective measures to deal with the situation expeditiously; (iii) to monitor how financial institutions control and manage risk; and (iv) to monitor the entire sector for issues that may have a negative impact on it.⁷⁴

The Act further provides that in pursuing these objects, OSFI is required: (i) to protect the rights and interests of depositors and creditors of banks,

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having due regard to the need for banks to compete effectively and take reasonable risks;⁷⁵and (ii) to have regard to the responsibility of boards of directors for the management of banks that operate in a competitive environment, necessitating the management of risk in the context of the fact that financial difficulties can lead to failure.⁷⁶

The Office is expressly established as an office of the Government of Canada, and the Minister of Finance is to "preside" over it and be responsible for it.⁷⁷

The Governor in Council appoints a deputy head of the Office, who is called the Superintendent of Financial Institutions.⁷⁸

In contrast to the earlier Inspector General of Banks, OSFI is part of the Government of Canada and not independent of it, making the Government expressly responsible for the federal financial institutions sector generally.

The Superintendent is appointed for a seven-year renewable term⁷⁹ and holds office during good behaviour.⁸⁰

In the event of absence or incapacity, the Governor in Council may appoint a replacement for up to six months.⁸¹

The Superintendent is responsible to the Minister of Finance for the administration of the Bank Act,⁸²as well as for the duties assigned under the OSFI Act.⁸³

To assist the Superintendent in carrying out the statutory duties assigned by these two Acts, the OSFI Act makes provision for the Office itself. The Superintendent may appoint Deputy Superintendents,⁸⁴to whom the powers and duties of the Superintendent may be delegated,⁸⁵ as well as additional employees.⁸⁶

The Act provides that the expenses of running the Office are to be defrayed from the Consolidated Revenue Fund,⁸⁷supplemented by assessments authorized by the Act against each financial institution supervised.⁸⁸

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However, the aggregate of expenditures from the Consolidated Revenue Fund is not permitted to exceed by more than $40 million the total of the assessments and revenues against the regulated institutions.⁸⁹

Treasury Board approval is required if the aggregate of expenditure from the Consolidated Revenue Fund exceeds the assessments and money appropriated by Parliament.⁹⁰

The role of OSFI in the supervision of financial institutions is facilitated under the Act by a committee consisting of the Superintendent, the Commissioner of the Financial Consumer Agency of Canada,⁹¹ the Governor of the Bank of Canada, the Chair of the Canada Deposit Insurance Corporation, and the Deputy Minister of Finance.⁹²

The purpose of this committee is to facilitate consultation and the exchange of information relating to this supervision,⁹³and all committee members are entitled to any information relating directly to supervision.⁹⁴

Members of the committee are not permitted to own shares, directly or indirectly, in any financial institution or related institution⁹⁵or to borrow money from them without informing the Minister in writing.⁹⁶

Nor is a committee member permitted to receive a grant or annuity from a financial institution or from any director, officer, or employee of such an institution.⁹⁷

The penalty for doing so is a fine of not more than $2,000 or imprisonment for not more than six months or both on summary conviction or $10,000 or five years or both on indictment.⁹⁸

OSFI receives information of vital importance to the national economy from the institutions it regulates, and the Act makes provision for the confidentiality of that information.⁹⁹

The Superintendent is permitted to make disclosures to certain persons provided confidentiality will be maintained, including to any government body or other agency that regulates or supervises financial institutions, the CDIC, the Deputy Minister of Finance, or any other authorized officer of the Department of Finance, the Governor of the Bank of Canada, or any other authorized

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Bank of Canada officer.¹⁰⁰

The terms of any disclosures may be regulated by the Governor in Council.¹⁰¹

The Superintendent is also required to make such disclosures as authorized by the Minister of Finance of information obtained under the Bank Act for the purpose of analysis of the financial condition of a financial institution, as well as of any other information obtained by the Superintendent while conducting industry surveys.¹⁰²

Disclosures of customer information to the Minister are prohibited in the absence of contrary regulations.¹⁰³

Finally, the Superintendent must prepare a report concerning information disclosure by financial institutions, especially its enhancement, and this report must be included in the Minister’s annual report to Parliament.¹⁰⁴

The Act makes extensive provision for penalties when a financial institution does not comply with an order, direction, or prudential agreement with the Superintendent under any financial institutions legislation.¹⁰⁵

However, the Act also provides for a Crown exemption from liability for any act or omission in good faith in the discharge of any powers or duties under the Act by the Crown, the Minister of Finance, the Superintendent, or anyone acting under the direction of the Superintendent.¹⁰⁶

As stated earlier, the duties of the Superintendent are set out in both the OSFI Act and especially in the Bank Act. The OSFI Act makes provision for only a few specific duties in addition to the general supervisory authority already discussed. First, the Superintendent may inquire into any dealing in securities by a financial institution or its officers or employees and report to the Minister.¹⁰⁷

Secondly, the Superintendent shall administer any regulations made by the Governor in Council in relation to dealing in securities,¹⁰⁸with the discretion set out in any regulations.¹⁰⁹

Otherwise, the OSFI Act provides that the Superintendent shall be employed only as the Superintendent¹¹⁰and may not be rewarded for any other duties performed for the Crown.¹¹¹

These restrictions ensure

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that there is no hint of conflict of interest, which might compromise the integrity of the Office.

For banks,¹¹²the supervisory duties of the Superintendent are set out in considerable detail in the Bank Act, which places on the Superintendent numerous duties in relation to the day-to-day supervision of banks from incorporation to winding-up. The Act requires banks to apply to OSFI for numerous types of approvals, consents, exemptions, and extensions.¹¹³

But the most important role of OSFI is that of ensuring the solvency of each bank and the security of depositor and shareholder interests in the event of insolvency. Part XIII of the Bank Act is concerned with this matter.

First, the Bank Act requires a bank to provide to the Superintendent such information as the Superintendent requires at any time.¹¹⁴

Secondly, banks are required to make annual reports to the Superintendent concerning balances¹¹⁵and bills of exchange¹¹⁶for which no transaction has taken place for a period of nine years or more, stating such information as names, addresses, amounts, and branches for each.¹¹⁷

Thirdly, banks are required to make annual returns showing the names and other pertinent information of all directors and auditors.¹¹⁸

Fourthly, banks are required to file by-laws with the Superintendent within...