Annual Report 2017-2018

Table of contents

 

Financial Statements

Financial Services Commission of Ontario

 

Government of Ontario crest

Financial Services Commission of Ontario

 

Chief Executive Officer and Superintendent of Financial Services

5160 Yonge Street
Box 85, 17th Floor
Toronto ON M2N 6L9

Telephone: (416) 590-7000
Facsimile: (416) 590-7078

 

Commission des services financiers de l’Ontario

 

Directeur général et surintendant des services financiers

5160, rue Yonge
boîte 85, 17e étage
Toronto ON M2N 6L9

Téléphone : (416) 590-7000
Télécopieur : (416) 590-7078

 

October 18, 2018

 

Management’s Responsibility for Financial Information

 

The Financial Services Commission of Ontario (Commission) was established under the Financial Services Commission of Ontario Act, 1997. Under the Act the Superintendent is responsible for the financial and administrative affairs of the Commission.

 

Under the direction of the Superintendent, Management of the Commission is responsible for the integrity and fair presentation of all information in the financial statements and notes. The financial statements have been prepared by Management in accordance with Canadian Public Sector Accounting Standards for government not-for-profit organizations. The preparation of financial statements involves the use of management’s judgment and best estimates particularly when transactions affecting the current period cannot be determined with certainty until future periods.

 

Management of the Commission is dedicated to the highest standards of integrity in provision of its services. Management has developed and maintains financial controls, information systems and practices to provide reasonable assurances on the reliability of financial information and safeguarding of its assets.

 

The financial statements have been audited by the Office of the Auditor General. The Auditor General’s responsibility is to express an opinion on whether the financial statements are fairly presented in accordance with Canadian Public Sector Accounting Standards for government not-for-profit organizations. They have been approved by the Commission’s Audit and Risk Committee. The Auditor’s report follows.

 

Signature of Brian Mills, Chief Executive Officer and Superintendent of Financial Services, Financial Services Commission of Ontario

Brian Mills
Chief Executive Officer and Superintendent of Financial Services

Signature of Carolyn Hamilton, Director, Corporate Services Branch


Carolyn Hamilton
Director, Corporate Services Branch

 

 

Office of the Auditor General of Ontario logo 

Office of the Auditor General of Ontario
20 Dundas Street West
Suite 1530
Toronto, Ontario
M5G 2C2
416-327-2381
fax 416-327-9862

tty 416-327-6123

 

Bureau du vérificateur general de l’Ontario
20, rue Dundas ouest
suite 1530
Toronto (Ontario)
M5G 2C2
416-327-2381
télécopieur 416-327-9862

ats 416-327-6123

 

www.auditor.on.ca [New Window]

 

INDEPENDENT AUDITOR'S REPORT

 

To the Financial Services Commission of Ontario and to the Minister of Finance

 

I have audited the accompanying financial statements of the Financial Services Commission of Ontario, which comprise the statement of financial position as at March 31, 2018, and the statements of operations, changes in net assets and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

 

Management’s Responsibility for the Financial Statements

 

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s Responsibility

 

My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with Canadian generally accepted auditing standards. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

 

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

 

Opinion

 

In my opinion, the financial statements present fairly, in all material respects, the financial position of Financial Services Commission of Ontario as at March 31, 2018 and the results of its operations and its cash flows for the year then ended in accordance with Canadian public sector accounting standards.

 

Toronto, Ontario
October 18, 2018

 

Signature of Bonnie Lysyk, MBA, CPA, CA, LPA, Auditor General

Bonnie Lysyk, MBA, FCPA, FCA, LPA
Auditor General

 

 

Statement of Financial Position

As at March 31, 2018

  March 31, 2018
($ '000)
March 31, 2017
($ '000)
ASSETS
Current   
  Cash 11
  Accounts receivable 35337
  Prepaid expenses 23612
 59050
Due from the Province (Note 7b)40,55537,049
Capital assets, net (Note 3)8,5938,947
 49,73846,046
LIABILITIES AND NET ASSETS
Current  
  Accounts payable and accrued liabilities12,38416,044
  12,38416,044
Employee future benefits obligation (Note 7a)4,5495,067
Deferred revenue (Note 4)23,22415,093
Deferred lease inducements (Note 5)261426
Net assets  
  Invested in capital assets8,5938,947
  Internally restricted (Note 11)727469
 49,73846,046

 

Commitment, significant contract and contingencies (Note 9)

 

See accompanying notes to financial statements

 

Approved by:

Signature of Brian Mills, Chief Executive Officer and Superintendent of Financial Services, Financial Services Commission of Ontario

 

Brian Mills

Chief Executive Officer and Superintendent of
Financial Services Commission of Ontario

 

 

Statement of Operations

For the Year Ended March 31, 2018

  March 31, 2018
($ '000)
March 31, 2017
($ '000)
Revenue (Note 6)
Assessments38,40263,386
Fees, licenses, registrations and other17,17215,272
 55,57478,658
Expenses
Salaries and wages31,15232,040
Employee benefits (Note 7a)7,9918,826
Transportation and communication525544
Services19,59041,842
Supplies and equipment338331
Amortization1,3531,639
Bad debt expense185134
 61,13485,356
Less: Recoveries (Note 8)4,6285,096
 56,50680,260
Deficiency of revenue over expenses from operations(932)(1,602)
Contribution by the province (Note 7b)1,1902,071
Excess of revenue over expenses (Note 7b and 11)258469

 

See accompanying notes to financial statements

 

 

Statement of Cash Flows

For the Year Ended March 31, 2018

  March 31, 2018
($ '000)
March 31, 2017
($ '000)
Net inflow (outflow) of cash related to the
following activities
Cash flows from operating activities
Excess of revenue over expenses258469
Items not affecting cash
Amortization of capital assets1,3531,639
Amortization of deferred lease inducements(165)(165)
Employee future benefits (Note 7a)(518)(4,177)
Bad debt expense185134
Changes in non-cash working capital
Accounts receivable(501)1,361
Prepaid expenses(224)11
Accounts payable and accrued liabilities(3,660)1,468
Due from the Province (3,506)2,698
Deferred Revenue8,131(1,799)
 1,3531,639
Cash flows from capital activity
Purchase of capital assets(999)(1,128)
 (999)(1,128)
Cash flows from financing activity
Investment in capital assets by the Province(354)(511)
 (354)(511)
Net change in cash position
Cash, beginning of year11
Cash, end of year11

 

See accompanying notes to financial statements

 

 

Statement of Changes in Net Assets

For the Year Ended March 31, 2018

 

  Invested in
Capital Assets

Internally
Restricted

Unrestricted
Net Assets

March 31, 2018

($ '000)
Total
March 31, 2017

($ '000)
Total
Balance, beginning of year 8,947                469 9,416 9,458
Excess/(deficiency) of revenues over expenses258(1,190)(932)(1,602)
Contribution by the Province1,1901,1902,071
Investment in capital assets(354)(354)(511)
Balance, end of year 8,593 727 9,320 9,416

 

See accompanying notes to financial statements

 

 

Notes to the Financial Statements

March 31, 2018

 

1. OPERATIONS OF THE COMMISSION

 

The Financial Services Commission of Ontario (Commission) was established under the Financial Services Commission of Ontario Act, 1997. The Commission’s mandate through its regulated activities is to protect the public interest and enhance public confidence in insurance, pensions, credit unions, trust companies, caisses populaires, co-operatives and mortgage brokers, and also to make recommendations to the Minister of Finance on matters affecting the regulated sectors.  The Commission administers the following legislation:  Insurance Act, Pension Benefits Act, Credit Unions and Caisses Populaires Act, Loan and Trust Corporations Act, Mortgage Brokerages, Lenders and Administrators Act and Co-operative Corporations Act. As a regulatory agency of the Province of Ontario, the Commission is exempt from income taxes.

 

2. SIGNIFICANT ACCOUNTING POLICIES

 

The financial statements have been prepared by the management of the Commission in accordance with Public Sector Accounting Standards for government not-for-profit organizations (PSA-GNFPO) as issued by the Public Sector Accounting Board (PSAB). The significant accounting policies used to prepare these statements are summarized below.

 

(a) Capital Assets

Capital assets are recorded at cost less accumulated amortization. Amortization is calculated on a straight-line basis over their estimated useful life. The useful life of the Commission’s capital assets has been estimated as follows:

 

  • Custom developed software: 5-10 years
  • Office furniture and equipment: 5 years
  • Computer hardware: 3-6 years
  • Leasehold improvements: over the term of the lease

 

(b) Revenue Recognition

Assessment revenues from the insurance, pension, credit union, caisses populaires and the loan and trust sectors are recognized when the recoverable costs to administer the various Acts governing these sectors are incurred.

 

Revenues from fees, licenses and registrations are recognized in the year to which they pertain.

 

(c) Financial Instruments

The Commission follows PSA-GNFPO pertaining to financial instruments. Under these standards, all financial instruments are included on the statement of financial position and are measured either at fair value or at cost or amortized cost. The Commission’s Accounts receivable, and the Accounts payable and accrued liabilities are recorded at cost in the financial statements.

 

(d) Use of Estimates

The preparation of financial statements in accordance with PSA-GNFPO requires that management make estimates and assumptions that affect the reported amount of assets and liabilities as at the date of the financial statements and the reported amounts of revenues and expenses for the period. Actual amounts could differ from these estimates. Significant items subject to such estimates and assumptions include the amortization expense, accrued liabilities, employee future benefits and allocation of costs between industry sectors.

 

3. CAPITAL ASSETS

  Cost Accumulated Amortization 2018
Net Book Value
2017
Net Book Value
  ($’000)
Custom developed software14,274(10,498)3,7764,636
Custom software under development 3,306(0)3,3063,304
Leasehold improvements7,352(7,278)74103
Computer hardware3,819(2,382)1,437904
Office furniture and equipment2,209(2,209)00
                 30,960 (22,367) 8,593               8,947

 

 

4. DEFERRED REVENUE RELATED TO LICENCES AND REGISTRATION

 

Deferred revenue represents payments received for fees, licences and registrations that cover more than the current fiscal year. The deferred portion is recognized as revenue when the applicable future licence year occurs. The changes in the deferred revenue balances during fiscal 2017-18 are summarized as follows:

 

  Balance, beginning of year Received during year Recognized during year Balance, end of year
  ($’000)
Insurance Agents4,5124,224(4,443)4,293
Insurance Adjusters24134(128)30
Mortgage Brokers5,91314,621(6,965)13,569
Insurance Corporations1,2501,152(1,231)1,171
Health Service Providers3,0993,532(3,099)3,532
Other2951,227(893)629
  15,093 24,890 (16,759) 23,224

 

 

5. DEFERRED LEASE INDUCEMENTS

 

In April 2008, the Commission’s office accommodation lease was extended from October 31, 2008 to October 31, 2015. The lease extension included a leasehold improvement allowance in the amount of $2.005 million for renovations in the first two years and no base rent payable in the amount of $0.64 million for the first ten months of the lease extension. The Commission has utilized the entire allowance.

 

In July 2014, the Commission’s office accommodation lease was extended from October 31, 2015 to October 31, 2020. The lease extension included no base rent payable in the amount of $0.82 million for the first four months of the lease extension.

 

The deferred lease inducement is made up of the portion of future lease payments attributed to the rent-free period and the leasehold improvements allowance and is recognized as reduced rent expense over the term of the lease on a straight line basis.

  2018 2017
  ($’000) ($’000)
Balance, beginning of year591               756
Less: Lease Inducements Amortization(165)(165)
Deferred Lease Inducements426591
Less: current portion(165)(165)
Balance, end of year 261               426

 

 

6. REVENUE

 

Under The Financial Services Commission of Ontario Act, the Commission may recover all of its costs through revenue assessments and fees charged to all entities that form part of the regulated sectors. For the fiscal year, revenue from the following Acts and regulations made under the Acts administered by the Commission are:

  2018 2017
  ($’000) ($’000)
INSURANCE ACT
Insurer assessment21,77347,975
Fees, licenses and other6,1296,273
Health Service Provider fees and licences3,7833,480
PENSION BENEFITS ACT
Pension plan assessment16,07214,842
Registration fees and other74114
CREDIT UNIONS AND CAISSES POPULAIRES ACT
Credit Union assessment398485
Fees and other109102
LOAN AND TRUST COMPANIES ACT
Loan and Trust assessment15984
Fees, licenses and registrations27
MORTGAGE BROKERAGES, LENDERS AND ADMINISTRATORS ACT
Fees, Licenses, Registrations and other7,0635,282
CO-OPERATIVE CORPORATIONS ACT
Fees and other1214
  55,574 78,658

 

7. RELATED PARTY TRANSACTIONS

 

(a) Employee Benefits

The Commission’s employees are entitled to benefits that have been negotiated centrally for Ontario Public Service employees. The future liability for benefits earned by the Commission’s employees is recognized in the Province’s consolidated financial statements. These benefits are accounted for by the Commission as follows:

 

i. Pension Benefits

The Commission’s full-time employees participate in the Public Service Pension Fund (PSPF) and the Ontario Public Service Employees’ Union Pension Fund (OPSEU-PF), which are defined benefit pension plans for employees of the Province and many provincial agencies.  The Province of Ontario, which is the sole sponsor of the PSPF and a joint sponsor of the OPSEU-PF, determines the Commission’s annual payments to the funds.   Since the Commission is not a sponsor of these funds, gains and losses arising from statutory actuarial funding valuations are not assets or obligations of the Commission, as the sponsors are responsible for ensuring that the pension funds are financially viable. The Commission’s annual payments of $2.76 million (2017 - $2.65 million) are included in employee benefits in the Statement of Operations.

 

ii. Employee Future Benefits Obligation

Employee future benefits include accrued severance entitlements, unused vacation, additional severance for those employees expected to be declared surplus, and other future compensation entitlements earned. The total costs for the year for all termination benefits amount to $0.77 million (2017 - $1.23 million) and are included in employee benefits and salaries and wages in the Statement of Operations. During the year, the accrued employee future benefits obligation was reduced by $1.36 million (2017 - $1.35 million) due to a curtailment resulting from changes under the Public Service Act of Ontario. The total liability for these costs is reflected in the employee future benefits obligation, less any amounts payable within one year, which are included in accounts payable and accrued liabilities, as follows:

  2018 2017
  ($’000)  ($’000)
Total liability for employee future benefits7,9649,406
Less:
Due within one year and included in accounts payable and accrued liabilities
(3,415)(4,339)
Employee benefits obligation 4,549 5,067

 

The legislative severance portion of the employee future benefits obligation was calculated based on the following assumptions: discount rate of 2.9% (2017 - 2.55%); and estimated average years to retirement of 10.4 years (2017 – 10.4 years). Due to the curtailment of the plan during the year no assumption of wage and salary escalation was used (2017 – 0%). These assumptions are management’s best estimates.

 

iii. Other Non-Pension Post-Employment Benefits

The cost of other non-pension post-retirement benefits is determined and funded on an ongoing basis by the Province and accordingly is not included in these financial statements.

 

(b) Amounts due from the Province

The due from the Province balance reflected in the financial statements is the difference between the cash receipts submitted to the Province and the Commission’s expenses paid, owing or absorbed by the Province.

 

The Commission’s deficit, which is absorbed by the Province, and its surplus for the year by sector are as follows:

 

Deficit by Sector 2018 2017
  ($’000)  ($’000)
Mortgage Brokers sector (834)(1,742)
Co-op sector (356)(329)
  (1,190) (2,071)

 

Surplus by Sector 2018 2017
  ($’000)  ($’000)
Health Service Providers sector258469
  258 469

 

(c) Other administrative expenses

The Ontario Ministry of Government and Consumer Services and the Ministry of Finance has charged for administrative costs including pay and benefits services, information technology services and office accommodation. The Ministry of Attorney General has charged for legal staff provided to the Commission based on the Ministry’s actual costs. Total related party expenses paid by the Commission were $14.51 million (2017 - $15.22 million).

 

8. RECOVERIES

 

The Commission provides administrative and other support services to a number of organizations and recovers the costs of providing these services from the organizations in accordance with the memorandum of understanding or agreement signed with the respective organizations. Details of these recoveries are as follows:

  2018 2017
  ($’000)  ($’000)
Motor Vehicle Accident Claims Fund (Related Party)2,4932,547
Pension Benefits Guarantee Fund (Related Party)758577
General Insurance Statistical Agency484808
Canadian Association of Pension Supervisory Authorities232288
Canadian Council of Insurance Regulators433542
Mortgage Broker Regulators' Council of Canada228334
  4,628 5,096

 

 

 

9. COMMITMENTS, SIGNIFICANT CONTRACTS AND CONTINGENCIES

 

(a) Office Accommodation Lease

The Commission’s office accommodation lease expires October 31, 2020 with two further options to extend the term for five years each and the one time right to terminate up to 40,000 square feet on October 31, 2018. As a result the Commission is committed to minimum lease payments for office space as follows if it does not exercise its termination right:

 

  ($’000)
2018/20195,265
2019/20205,341
2020/20213,116
  13,722

 

The Commission’s future commitment will be impacted by the creation of the Financial Services Regulatory Authority (Note 9 c and 12).

 

(b) Dispute Resolution Services Contract

As of April 1, 2016, the Automobile Accident Benefits Service (AABS) at the Safety, Licensing Appeals and Standards Tribunal of Ontario assumed all new applications for Dispute Resolution Services. FSCO no longer accepts applications for mediation, neutral evaluation and arbitration, but continues to be responsible for files remaining open as of March 31, 2016. FSCO continues to wind down arbitration files related to applications received March 31, 2016 or earlier. All mediation files were closed as of July 26, 2016.

 

In August 2012, the Commission entered into a contract with an outside service provider for mediation and arbitration services related to disputes over auto insurance accident benefits. No files were assigned under this contract after May 2014. In June 2014, another contract was signed with the service provider for arbitration services until May 2018. The expenditures for the year for these contracts amount to $1.1 million (2017 - $23.0 million) which are included in services expenses. These costs are charged back to the insurance companies that utilize the services. The contract concluded on May 31, 2018.

 

(c) Mandate Review

On June 29, 2017, the Financial Services Regulatory Authority of Ontario Act, 2016, came into force. The Financial Services Regulatory Authority of Ontario (FSRA), a new, independent regulatory agency will be responsible for regulating pensions and the financial services sectors.  The Act, many sections of which have yet to be proclaimed, establishes FSRA's role, including its basic governance and accountability structure, in regulating the sectors under its jurisdiction.

 

FSCO will continue to actively support FSRA’s efforts to prepare for the future and ensure a smooth transfer of current operations. However, until FSRA is operational, FSCO remains the financial services and pension plan regulator in Ontario.

 

(d) Contingencies

The Commission is involved in various legal actions arising out of the ordinary course of business. Settlements paid by the Commission, if any, will be accounted for in the period in which the settlement occurs. The outcome and ultimate disposition of these actions are not determinable at this time.

 

10. FINANCIAL INSTRUMENTS

 

Interest rate risk: 

The Commission’s financial assets and liabilities are not exposed to interest rate risk.

 

Currency risk:

The Commission’s exposure to currency risk is minimal as few transactions are in currencies other than Canadian dollars.

 

Credit risk:

The Commission is exposed to low credit risk in its financial instruments from accounts receivable owing from industry due to high historical collection rates. Over 90% of the accounts receivables are current as they are less than 30 days old.

 

Liquidity risk:

The Commission’s exposure to liquidity risk is minimal as the Commission may recover all of its costs through revenue assessments and fees charged to all entities that form part of the regulated sectors. As well any deficiency of revenue over expenses is absorbed by the Province and is reflected in the Due from the Province on the Statement of Financial Position.

 

11. INTERNALLY RESTRICTED NET ASSETS

 

The Commission internally restricted $0.73 million (2017- $0.47) surplus derived from the Health service providers sector (Note 7b) to be used in the Health service providers sector in the future.

 

12. SUBSEQUENT EVENT

 

Effective July 1, 2018, the Commission’s office accommodation lease was assigned to the FSRA. The Commission will continue to cover the office accommodation lease costs until FSRA becomes operational.

 

Return to top