This document describes the governance framework for managing the Government of Canada’s financial assets and liabilities.
The funds management governance framework outlined in this document describes the roles and responsibilities of officials within the Department of Finance and the Bank of Canada (as fiscal agent of the Government), and of the committees of officials established to govern funds management activities.
As background, objectives and operational principles for managing the federal government’s financial assets and liabilities can be found in key policy documents summarized in Chapter 1.
The framework is designed to:
This document is supplemented by other governance-, policy- and program-related documents as amended over time. These include:
Policy and Programs
Funds management activities are guided by several fundamental objectives.
Funds management of the Government of Canada encompasses issuance of debt, management of liquidity and investment of financial assets. It is separated into two key functions: financial asset and liability management, and risk management. Activities under each of these two functions are guided by a set of overarching key principles.
In addition, distinct objectives and principles have been established within the financial asset and liability management function which pertain to the management of domestic debt and cash, foreign reserves and retail debt.
Domestic Debt and Cash Management
The fundamental objective of domestic debt and cash management is to raise stable and low-cost funding to meet the operational needs of the Government of Canada.
An associated objective is to maintain a well-functioning market in Government of Canada securities, which helps to keep debt costs low and benefits a wide array of domestic market participants.
In pursuit of these objectives, the Government of Canada manages its activities according to a set of principles.
Foreign Reserves Management
The objective of the Exchange Fund Account (EFA) is to aid in the control and protection of the external value of the Canadian dollar. Assets held in the EFA are managed to provide foreign currency liquidity to the Government and to promote orderly conditions for the Canadian dollar in the foreign exchange markets, if required. The key strategic objectives of foreign reserves management are to maintain a high standard of liquidity, preserve capital value and optimize return subject to liquidity and prudence objectives.
In pursuit of these objectives, the Government of Canada manages its foreign exchange reserves according to a set of principles.
The key objectives of the Retail Debt Program are to deliver a cost-effective program that provides value to Canadians and contributes to a diversified investor base, and to ensure Canadians are aware of and have access to Government of Canada non-marketable securities.
In pursuit of these objectives, retail debt activities are managed according to a set of principles.
Market savings products that have a distinctive “Canada” brand.
The key objectiveof risk management is to identify and manage market, credit, operational and legal risks related to funds management activity.
In pursuit of this objective, risk management activities are managed according to a set of principles.
The ultimate authority for funds management policy rests with the Minister of Finance.
Legal authority for the Government’s borrowing and cash management program is provided by Part IV (Public Debt) of the Financial Administration Act. Provisions of the Currency Act govern reserves activities. Section 24(1) of the Bank of Canada Act provides statutory authority for the Bank of Canada to act as the Government’s fiscal agent. Details of these legal and regulatory frameworks can be found in the highlight boxes on the following page.
The Government’s debt, reserves, cash and risk management involve the Department of Finance and the Bank of Canada.
Part IV (Public Debt) of the Financial Administration Act (FAA) (http://laws.justice.gc.ca/en/F-11/index.html) provides the legislative basis for the Government’s borrowing program.
The FAA states that the Minister cannot borrow money without the authority of the Governor in Council. Each year, the Minister must table in Parliament a report on the planned borrowing and debt management for the next fiscal year. The Act provides the Minister with the authority to use modern financial and risk management tools and techniques such as interest rate and currency swaps, options, futures and forwards in the conduct of financial operations and for risk management purposes.
In addition, the Act provides the Minister of Finance with legislative authority to establish rules governing the issuance of debt. The Terms of Participation in Auctions (http://www.bankofcanada.ca/en/markets/markets_auct.html) govern the primary market activities of government securities distributors and customers.
The powers of the Minister can be delegated to officials of the Department of Finance.
Exchange fund account
The Exchange Fund Account (EFA) is governed by Part II of the Currency Act (http://laws.justice.gc.ca/en/C-52/index.html) and is held in the name of the Minister of Finance.
The legislative mandate of the EFA is to aid in the control and protection of the external value of the Canadian dollar. Under the Currency Act, as revised in 2005, the Minister of Finance acquires, borrows, sells or lends assets to be held in the Account in accordance with the Statement of Investment Policy.
The Currency Act provides that the net income of the EFA for a fiscal year is payable to the Consolidated Revenue Fund of the Government of Canada.
The Bank of Canada Act (http://laws.justice.gc.ca/en/B-2/) provides statutory authority for the Bank of Canada to act as the Government’s fiscal agent in the payment of interest and principal and generally in respect of the management of the public debt of Canada.
The Minister of Finance is responsible for proposing approval of refinancing authority and preparing new Borrowing Authority Acts to the Governor in Council.
The Minister approves policies for funds management activities, including financial asset and liability management (wholesale and retail debt management strategy, reserves and cash management) and funds risk management. As circumstances warrant, the Minister approves significant initiatives or major changes to strategies during the fiscal year.
Prior to the start of a fiscal year, the Minister reports to Parliament on the Government of Canada’s debt management strategy for the coming fiscal year (the Debt Management Strategy).
Within 30 sitting days of the tabling of the Public Accounts of Canada in Parliament, the Minister submits a report on the federal debt operations for the previous fiscal year (the Debt Management Report).
The Minister is also responsible for providing an annual report to Parliament on the operations of the EFA within the first 60 days on which the House is sitting after the end of each fiscal year (the annual Report on the Management of Canada’s Official International Reserves).
Senior management at the Department of Finance includes the Deputy Minister, (Senior) Associate Deputy Minister, Associate Deputy Minister, Assistant Deputy Minister of the Financial Sector Policy Branch, General Director of the Financial Sector Policy Branch, and a senior official of a branch external to the Financial Sector Policy Branch (related to risk management).
Senior management at the Bank of Canada includes the Governor, the Deputy Governor responsible for Financial Markets, and the Adviser, Strategic Planning and Risk Management.
Annex 1 depicts the authorities’ relationship among senior management within the Department of Finance and the Bank of Canada (pertaining to fiscal agency roles), separated by area of activity (financial asset and liability management, and risk management).
It is the responsibility of senior management to provide advice to the Minister on policy, strategy and risk, and to direct and oversee funds management policy development and implementation.
Officials – Financial Asset and Liability Management
Operating under the direction of the Director of the Financial Markets Division (Finance) and the Chief of Financial Markets Department (Bank of Canada), officials are responsible for the day-to-day management of wholesale debt, reserves and cash balances, consistent with approved policies and strategies. Operations of the Retail Debt Program are under the direction of the Director of the Financial Markets Division (Finance) and a Senior Officer, Department of Banking Operations (Bank of Canada).
Officials provide analysis and develop policies and recommendations for funds management. They inform and advise senior management on issues by reviewing, evaluating, analyzing and making recommendations on the Government of Canada’s borrowing, reserves and cash investment programs, strategy and operations. They conduct analysis and research on best practices and conduct annual external consultations on policy and operational matters. Officials also conduct and monitor Government of Canada financing and investing operations and collect and verify data on primary and secondary market activity related to Government of Canada securities. Also, operating under a Senior Officer, Department of Banking Operations (Bank of Canada), officials at the Bank of Canada oversee the issuance and retirement of debt instruments and the making of interest payments on Government of Canada wholesale and retail debt.
Officials – Risk Management
The Adviser, Strategic Planning and Risk Management, and the Director of the Financial Risk Office (FRO), Bank of Canada, are responsible for oversight of FRO.
Officials in FRO are responsible for the day-to-day monitoring of risk associated with funds management activities. They report on risk levels and operational infractions and provide advice on risk practices suitable for sovereign funds management. Officials in the Office are also responsible for providing advice on risk management issues in the development of funds management policy.