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Financial Highlights
Raison d'être
The Financial Consumer Agency of Canada (FCAC) was established to consolidate and strengthen oversight of consumer protection measures in the federally regulated financial sector, and to expand consumer education and financial literacy activities so that Canadians have the appropriate information and financial skills they need to make informed financial decisions and actively participate in and strengthen the financial sector.
Role and Mandate
FCAC is an independent federal government agency established under the Financial Consumer Agency of Canada Act (FCAC Act). It fulfills the roles listed below. In 2010–11, the Government of Canada expanded the Agency's mandate to include the items in italics.
- Supervise financial institutions to determine whether they are in compliance with
- the consumer provisions applicable to them, and
- the terms and conditions or undertakings with respect to the protection of customers of financial institutions that the Minister imposes or requires and the directions that the Minister imposes under the FCAC Act.;
- the consumer provisions applicable to them, and
- Promote the adoption by financial institutions of policies and procedures designed to implement
- provisions, terms and conditions, undertakings or directions referred to in paragraph (a),
- voluntary codes of conduct that are designed to protect the interests of the customers of financial institutions that are adopted by financial institutions and that are publicly available, and
- any public commitments made by financial institutions that are designed to protect the interests of their customers;
- Monitor the implementation of voluntary codes of conduct that are designed to protect the interests of customers of financial institutions, that have been adopted by financial institutions and that are publicly available and to monitor any public commitments made by financial institutions that are designed to protect the interests of their customers;
- Promote consumer awareness about the obligations of financial institutions under consumer provisions applicable to them and about all matters connected with the protection of consumers of financial products and services;
- Foster, in co-operation with any department, agency, or agent corporation of the Government of Canada or of a province, financial institutions and consumer and other organizations, an understanding of financial services and issues relating to financial services;
- Monitor and evaluate trends and emerging issues that may have an impact on consumers of financial products and services;
- Supervise payment card network operators to determine whether they are in compliance with the provisions of the Payment Card Networks Act and its regulations;
- Promote the adoption by payment card network operators of policies and procedures designed to implement the provisions of the Payment Card Networks Act and its regulations;
- Monitor the implementation of voluntary codes of conduct that have been adopted by payment card network operators and that are publicly available, and to monitor any public commitments made by them regarding their commercial practices in relation to payment card networks;
- Promote public awareness about the obligations of payment card network operators under a voluntary code of conduct or under the Payment Card Networks Act.
Basis of presentation
These quarterly financial statements have been prepared by management as required by Section 65.1 of the Financial Administration Act and in accordance with International Financial Reporting Standards (IFRS), using the accrual basis of accounting.
FCAC historically prepared its annual financial statements in accordance with Canadian generally accepted accounting principles for publicly accountable Canadian reporting entities. Effective April 1, 2011, FCAC adopted IFRS. Certain comparative figures presented in the Financial Highlights section below have been restated to conform to the presentation adopted in fiscal year 2011-2012.
These quarterly financial statements have not been subject to an external audit or review.
FCAC's funding model
FCAC recovers its costs from several revenue sources. FCAC is funded mainly through asset-based, premium-based or transaction-based assessments on the financial entities it supervises.
The accompanying quarterly financial statements reflect FCAC's legislated authority to spend assessments and revenues per Section 13(2) of the Financial Consumer Agency of Canada Act (FCAC Act) as well as any authorities granted by Parliament and used by FCAC. FCAC receives an annual appropriation of $ 2 million pursuant to Section 13(3) of the FCAC Act to support efforts to improve financial literacy in Canada. Such funding is presented as Government Funding in the Statement of Operations, Other Comprehensive Income and Deficit and the amount is consistent with the terms and conditions approved by the Treasury Board.
Financial Review and Highlights - Year to Date Results
FCAC's total expenses for the six months ended September 30, 2011 were $5.68 million, a $544,800 increase, or 10.6% increase from the same period last year. This increase is primarily due to an increase in human resource costs of $477,300 and additional investments in accommodation and technology infrastructure.
Accommodations costs were $501,200, a $203,300 increase due to facilities related expenses of leasing additional space, and amortization of building improvements and furniture and equipment investments to accommodate the additional staff for the expanded mandate.
Information Management/Technology (IM/IT) expenses were $376,500, a $181,300 increase from the same period last year. The large majority (approximately 86%) of the increase relates to the implementation of long-term Web Renewal and Content Management System projects necessary to support our evolving supervisory, and financial education activities. These were in large part deferred to this fiscal year, and do not relate to the expanded mandate. To cover the expenses of these two projects, a reallocation of funds not associated with the expanded mandate was made during the first half of the year.
The increases above were, by and large, offset by reduced Professional Services costs (lower by $300,800 compared to the first six months of fiscal year 2010-11), as projects' timelines for fiscal year 2011-12 are different from those in fiscal year 2010-11. A larger proportion of projects, for which contracted services were used were started or completed in the first half of fiscal year 2010-11.
The cost increases related to human resources and accommodations are, for the most part, the result of FCAC's expanded mandate which began in Q2 of fiscal year 2010-11. The positions that have been filled account, by and large, for the variance between the six months ended September 30, 2011 vs. September 30, 2010. As at September 30, 2011, staff recruitment is continuing for positions not yet filled, which are also related to FCAC's new responsibilities.
FCAC's total expenses for the six months ended September 30, 2011 totalled $5.68 million or 88.4% of its budgeted expenses for the period, compared to 88.9% for the same period last year. The variance to budget as at September 30, 2011 of $748,000 is primarily due to timing issues in recruitment staffing and contract-based projects and initiatives, which are now underway.
The mid-year review will assess potential re-allocation of the remaining budget and analyse if the funds not spent to date can result in permanent savings for fiscal year 2011-12.
Financial Review and Highlights - Quarter Results
FCAC's total expenses for the three months ended September 30, 2011 were $2.83 million, relatively unchanged from the same period last year.
However, human resources costs and accommodations related expenses were higher by $262,500 and $105,800, respectively, when compared to the same period last year. As indicated in the previous section, these increases are for the most part, the result of FCAC's expanded mandate which began in Q2 of fiscal year 2010-11.
The repatriation of the Consumer Contact Centre from the Canada Deposit Insurance Corporation (CDIC) in July 2011, also contributed to the increase in human resources costs for Q2 2011-12. However, as the cost related to the memorandum of understanding with CDIC was previously included in Professional Services, the repatriation was a contributing factor in the reduction of that expense category. In addition, as discussed in the section entitled “Financial Review and Highlights - Year to Date Results”, different 2011-12 projects' timelines, when compared to 2010-11, also contributed to lower Professional Services costs.
Moreover, the Agency's lower Administrative and Other costs are due to printing and publishing related expenses (i.e.: 2010-11 Annual Report was not printed and less printed publications as there was a good reserve in stock)
FCAC's total expenses for the three months ended September 30, 2011 represent 87.3% of budget compared to 95.8% for the same period last year. The rationale for the variance to budget is similar to the one related to the year to date results discussed in the section Financial Review and Highlights - Year to Date Results.
Government Funding
In addition to its revenues from asset-based, premium-based or transaction-based assessments on the financial entities it supervises, FCAC was granted a parliamentary appropriation of $2 million for the fiscal year ended March 31, 2012 (2010-2011- $2 million) to support efforts to improve financial literacy in Canada. In the quarter ended September 30, 2011 FCAC used $0.38 million (2010 - $0.37 million) of this appropriation. For the six months ended September, 30, 2011, FCAC used $0.71 million (2010 - $0.62) of this appropriation.
Risks and Uncertainties
Business risks and financial statement implications
Business risks result from significant conditions, events, circumstances, actions, or inactions that could adversely affect FCAC's ability to achieve its objectives and execute its strategies. Business risk is broader than the risk of material misstatement of the financial statements. Business risks may eventually have financial consequences and, therefore, an effect on the financial statements.
Enterprise Risk Management
The environment in which FCAC operates presents an array of risks to the achievement of its mandate and objectives. While many of these challenges are consistently present, the extent to which they present a risk to FCAC's objectives varies, depending on economic and financial conditions and the financial industry environment and its impact on financial consumers. FCAC's ability to achieve its mandate depends on the timeliness and effectiveness with which it identifies, evaluates, prioritizes, and develops initiatives to address areas where its exposure is greatest.
FCAC's risk management process divides risks into external and internal categories. The external risk category consists of economic and financial conditions, the financial industry environment, financial consumers' financial situation, FCAC's legal environment and catastrophic events. External risks arise from events that FCAC cannot influence, but must be able to monitor and respond to in order to mitigate the impact. The internal risk category consists of risks that can broadly be categorized as people, processes, systems, and culture and relationships with partners.
Economic, Industry and Supervisory Environment
Despite the fragile international financial environment, the Canadian financial system remains relatively strong, with domestic financial markets functioning well and the capital and liquidity positions of Canada's major banks showing continuing strength.
The main domestic source of risk arises from the financial position of Canadian households, which may leave them more vulnerable to adverse events. FCAC continues to monitor financial consumers' indebtedness in order to provide services and tools to help them understand and better manage their financial situation.
FCAC developed its Corporate Risk Profile and provides regular updates to the Management Committee and Audit Committee. Risks are reviewed periodically and monitored. FCAC's Corporate Risk Profile process has identified several key risks to the achievement of its mandate and objectives, as follows:
Internal Risks
People Risks
FCAC's success is dependent upon having employees with highly specialized knowledge, skills and experience to supervise financial institutions and payment card network operators, identify significant compliance issues, and initiate and/or develop financial education material to fill identified consumer knowledge and information gaps.
Increasingly complex financial products, changes to regulations and addition of new regulations and the supervision of a new group of financial entities also mean that FCAC needs to be able to attract, motivate, develop and retain skilled people. In addition, increases in hiring over the last two years due to expanded mandate and normal turnover rate mean that a continuous learning environment is necessary to enable employees to meet the challenges of this constantly changing environment.
Systems Risks
Enabling technology and a robust, secure and well-supported Information Technology (IT) infrastructure are key success factors to FCAC in meeting its mandate. FCAC must ensure that the necessary information systems and infrastructure are in place to effectively support its supervisory and financial education activities. These systems are required on an ongoing basis in response to a complex and rapidly changing environment. There is a need to manage the risk of making IM/IT changes coinciding within a dynamic business. Implementation issues related to the new IM/IT strategy are being closely monitored and evaluated.
Partners Risks
While FCAC's mandate is national in scope, it does not have a physical presence across Canada to help deliver on its mandate. As such, FCAC's strategy is to work and rely on a diverse network of partners and stakeholders from the public, private and not-for-profit sectors to advance key components of the Agency's program activities. If FCAC does not develop sound, strategic, credible alliances in support of its programs, the Agency's ability to achieve its objectives could be directly or indirectly impaired. Therefore, results might not meet the commitments or expectations of stakeholders, partners' and/or FCAC.
FCAC formalizes agreements with its key partners, stakeholders and external consultants that outline agreed-upon outcomes, with the aim of clarifying and documenting the processes and results to be achieved for a particular project or activity.
Financial Risks
Financial risks, primarily liquidity risk and credit risk, are closely managed and continue to be rated low. Please refer to Note 16 of the financial statements for a full analysis of the financial risks that FCAC is exposed to.
In Budget 2010 the federal government announced that the operating budgets of departments would be frozen at their 2010-2011 levels for the years 2011-2012 and 2012-2013, excluding the resources required for the new areas of responsibilities. In response to this announcement, FCAC has taken measures to operate within its 2010-11 annual allotment, excluding the funding required to execute on its expanded mandate. In addition, FCAC, as part of the Strategic and Operating Review announced in Budget 2011, continues its exercise to review its programs and support functions to assess if any additional savings can be extracted from its operating costs, without jeopardizing the execution of the Agency's mandate.
Significant Changes in Relation to Operations, Personnel and Programs
There have been no significant changes in relation to operations, personnel and programs during the period ended September 30, 2011.
In 2010-2011 FCAC's legislated mandate was expanded to include the supervision of payment card network operators. In addition, a research function was created to monitor and evaluate trends and emerging issues that may have an impact on consumers of financial products and services.
As indicated above, this resulted in larger staff complement and the necessary physical and technological resources to accommodate them.
Approval by Senior Officials
Approved by,
Lucie Tedesco,
Chief Financial Officer
Ursula Menke,
Commissioner
November 24, 2011
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