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Memorandum of Understanding Amongst The Bank of Canada (the "Bank") and Canada Investment and Savings (“CI & S”), a Special Operating Agency ("SOA") of the Department of Finance and Financial Sector Policy Branch (FSP), The Department of Finance ("Finance"), Government of Canada
Effective April 1, 2003
1. Introduction
1.1 Purpose of the Memorandum of Understanding (MOU)
The purpose of this MOU is to establish a framework to enable effective working relationships between the Bank of Canada,Canada Investment and Savings, and the Financial Sector Policy Branch with respect to the delivery of the Retail Debt Program for the Government of Canada.
This MOU sets out a mutually acceptable governance structure, guiding principles, respective roles and means of fulfilling responsibilities and terms and conditions and service levels governing the delivery of systems and operations support provided by the Bank in respect of the Retail Debt Program.
1.2 Definition of the Retail Debt Program (RDP)
The Retail Debt Program, for the purposes of this MOU, includes all product management, marketing, sales, systems and operations, as well as all financial aspects of Canada Savings Bonds and Canada Premium Bonds as well as other debt instruments sold by the government to retail investors in Canada whether held within a non-registered or registered (e.g. RRSP, RRIF) plan.
1.3 Retail Debt Program
The Retail Debt Program will:
deliver a vibrant, creative and cost-effective Retail Debt Program for the government that provides value to Canadians and contributes to a diversified investor base, and
ensure Canadians are aware of, and have access to, Government of Canada marketable and non-marketable securities.
1.4 Guiding Principles
The parties acknowledge that the foundation for co-operation lies in clearly defined responsibilities and accountabilities and recognition and respect for the different organisational responsibilities (e.g. CI&S as an SOA within Finance and the Bank as an independent institution). To achieve the Retail Debt Program mandate, the Bank, CI&S and FSP acknowledge that their ongoing working relationships must be based on open and honest communication, full sharing of information, mutual trust, respect and a commitment to the program. The parties further do not intend one party to manage the activities of another party to this MOU.
The Bank, CI&S and FSP will work closely and collaboratively using ongoing communication, full transparency and an integrated set of business planning processes to develop consensus on matters relating to the Retail Debt Program. As an operating practice, the Retail Debt Program will be executed through cross-functional teams comprised of staff from the Bank, CI&S and from time to time, FSP. The parties will seek cost efficiency by minimizing highly detailed, bureaucratic and paper-based processes and lengthy negotiations and decision-making processes.
2.0 Overall Roles for the Retail Debt Program
2.1 Governance and Committees Structure
Finance is responsible for CI&S as an SOA of the Department. The Deputy Minister (DM) heads the governance structure and approves all matters going to the Minister.
Two inter-agency policy advisory committees support the Retail Debt Program: RDP Steering Committee and Working Group.
Retail Debt Program Steering Committee
The Steering Committee (SC) is the inter-agency strategic policy advisory committee providing overall direction for the Retail Debt Program by advising all parties to this MOU. The Deputy Minister, or the Associate Deputy Minister or equivalent, is the Chair of the SC, whose membership includes the President and CEO of CI&S, the Assistant Deputy Minister of Financial Sector Policy Branch, and a Deputy Governor of the Bank of Canada. The SC reviews and the Chair recommends all strategic matters going to the Minister including annual business plans and major policy related business cases for the Retail Debt Program. This Committee will meet no less than quarterly or more frequently as needed.
Working Group
The Working Group is an inter-agency advisory committee that reviews and advises all parties on matters relating to program policy and delivery and all strategic issues going to the Steering Committee. It reviews business plans and budgets, as well as business cases on all major new project initiatives. CI&S is the Chair of the committee and membership includes senior officials from CI&S, Financial Sector Policy and the Bank of Canada. Any member of the WG can bring issues to the Group for discussion. This Group will meet monthly or more frequently as needed.
2.2 Roles and Responsibilities
The Bank, CI&S and FSP acknowledge that Annex I broadly summarizes the respective roles and responsibilities of the parties supporting the Retail Debt Program. This Annex may be revised with the written consent of all parties.
Financial Sector Policy, Department of Finance
FSP is responsible for overall debt strategy policy. In collaboration with CI&S and the Bank, FSP develops the policy direction for the Retail Debt Program in the context of overall debt strategy and advises on annual business plans and budgets, major new business cases and pricing.
CI&S
Within the Department of Finance, CI&S has primary responsibility for the day-to-day management of the Retail Debt Program file. CI&S, working in consultation with the Bank and FSP, is responsible for developing the Retail Debt Program's strategic direction, including the development of the annual Retail Debt Program's business plan and budget. The Agency is responsible, working in collaboration with the Bank and FSP, for managing the front office aspects of the program.
CI&S is responsible, working in collaboration with the Bank and FSP and in a manner consistent with the business plan approved by the Minister of Finance, for identifying and defining product and service requirements; marketing strategy, public relations, customer communications and their implementation; sales and sales force management as well as monitoring and reporting on the Retail Debt Program budget.
Bank of Canada
The Bank acts as the government's fiscal agent. In collaboration with CI&S and FSP, the Bank is responsible for providing advice and managing the back office aspects of the Retail Debt Program. This includes responsibility for accounting for the retail debt outstanding (e.g. issuing and redeeming the bonds, paying interest, etc.), and the provision of systems and operations support for the Retail Debt Program, consistent with the strategic direction of the Retail Debt Program and with the business plan approved by the Minister of Finance. The Bank is the custodian of the bondholder register and also provides strategic advice on the Retail Debt Program. The Bank has the authority to contract with a Third Party for the provision of back office systems and operational support. While the Bank is independently accountable to its Board of Directors, it acknowledges its responsibilities under this MOU for the delivery of the back office services for the Retail Debt Program.
2.3 Working Relationship
The Bank and CI&S will use the following in order to facilitate and strengthen working relations between the two organizations:
cross-functional work groups comprised of CI&S and the Bank (and from time to time, FSP) personnel to carry out projects, initiatives or reviews, with project leaders selected from CI&S or the Bank, depending on the subject matter, thus ensuring all available information is considered when making decisions (particularly those where there is a customer or cost impact so that group consensus is obtained).
2.4 Operational Systems Support
The Bank, CI&S and FSP will agree as to which activities are to be supported by the Bank. If an activity is to be supported by the Bank, CI&S will provide a documented project definition with associated services required and agreed-upon service standards. Once an understanding on the scope of work has been reached, the Bank will provide these services by using its own operations and systems or by contracting services from third parties. The Bank will work to ensure that its services are cost-effective and competitive with those available in the private sector.
If the parties agree that the service is to be performed on behalf of CI&S by a party other than the Bank, CI&S may also make a written request to the Bank to provide evaluation, selection, project management, supervisory or other services.
On the basis of the agreements referred to in this Section 2.4, the Bank will plan and budget for the infrastructure investments and resource requirements required to support the Retail Debt Program. The new initiatives budget will be developed jointly by the Bank and CI&S and those amounts spent by the Bank but only on the agreement of CI&S, will be recovered from CI&S through the quarterly invoice.
The Bank will consult with the Working Group (and where necessary the Steering Committee) where third party contracting would have a significant impact on budget, service levels, etc. The Bank has the authority to contract with a third party and any such contract will be an agreement between the Bank and the third-party contractor. Contracts will normally be based on commercial standards and may provide for services beyond the expiration of the MOU. After consultation with CI&S, the Bank will arrange for each third-party supplier contract to contain termination provisions, which reflect the termination requirements, if any, contained in the relevant project definitions provided by CI&S. If CI&S cancels a product/service requirement, it will reimburse the Bank for any penalties paid by the Bank, provided that CI&S was aware of and agreed to the nature and extent of such penalties when the project definition was finalized.
2.5 Sales Support
The parties acknowledge that the development and maintenance of a strong direct and indirect sales and distribution channel are essential to the successful operation of the Retail Debt Program. In accordance with the roles and responsibilities set out in Annex I, the Bank and CI&S will develop and maintain strong direct and indirect sales channels (e.g. payroll companies, service providers, banks and other financial institutions, and organisations that act as sales, processing or redemption agents) as required by the Retail Debt Program. The Bank will participate in the strategic development of these channels by developing, enhancing and maintaining supporting systems, personnel and other resources. CI&S will establish contractual relationships with its sales agents, including sponsors of the New Canada Savings Bonds Payroll Savings Program.
3. Change Management Process
The parties will comply with the Change Management Process outlined in Annex II.
4. Escalation Process
An "Escalation Process" is available to expeditiously resolve outstanding issues. The escalation procedure will be:
1. The Project Leader attempts to resolve the issue within the cross functional team referred to in Sections 1.4 and 2.3;
2. The Project Leader escalates the issue to the CI&S and Bank management sponsor(s) and stakeholders for resolution (e.g. VP or Director/Chief level, etc);
3. The Project Leader prepares a presentation of diverging views and/or recommendation including an impact assessment (e.g. increased costs, timeliness and resource allocation) for consideration by the Working Group;
4. Further escalation to the RDP Steering Committee will occur only if there are serious issues impacting on CI&S or the Bank of Canada that the Working Group is not able to resolve.
5. Customer Service Standards
The Bank and CI&S have established the key customer service standards related to the main services provided by the Bank and these are included in Annex III. The Bank will manage to these service standards. The Bank and CI&S will review these service standards annually (or more frequently as agreed by the parties) and changes can be made using the Change Management Process (see Section 3). Service standards and a reporting schedule will be set by CI&S and the Bank for any new initiatives.
6. Non-Competition
The Bank will consult with FSP and CI&S prior to selling, licensing or otherwise transferring any system or business process it uses to support the Retail Debt Program. Should the Bank sell, license or transfer any component of the systems or business processes supporting the Retail Debt Program, all revenues accruing to the Bank shall be to the benefit of the Retail Debt Program and shall be shown as a line item on the Bank's quarterly invoice to CI&S. The Bank and CI&S include this flexibility providing that any potential new business does not jeopardise key customer service standards (Annex II), or any system function or operational process of the Retail Debt Program.
7. Planning and Financial Arrangements
7.1Planning
CI&S, in collaboration with the Bank and FSP, will prepare the Retail Debt Program's strategic plan and annual Business Plan and budget covering a three-year period. The Bank and CI&S will support the planning processes of both organisations, and will include appropriate representation from the other parties as part of each respective organisation's annual planning exercises.
The Bank, in collaboration with CI&S and FSP, as part of a joint planning process, will develop the systems and operations priorities for the Retail Debt Program consistent with the Business Plan and priorities. The Bank will provide input into CI&S' business planning and reporting process, including the provision of a systems and operations work plan and budget forecast for all support functions to the Retail Debt Program, in a level of detail commensurate with the rest of the plan.
The Bank will ensure that the plan it puts forward internally will be the same as its portion of the Retail Debt Program's annual Business Plan, in respect of all substantive matters (such as budgets, initiatives, plans and priorities), subject only to differences necessitated by reporting formats and reporting periods, so that there will be only one business plan for the Retail Debt Program.
CI&S will submit the Retail Debt Program annual Business Plan to the Working Group for review and the Steering Committee for recommendation to the Minister for approval. CI&S and the Bank will bring any major changes to these plans to the Working Group for review and to the Steering Committee for approval.
The Bank will provide input into plans and priorities for systems and operations and any other performance information needed to meet the CI&S Charter, and the Department of Finance and Treasury Board's reporting requirements (e.g. CI&S Annual Report, Main Estimates, etc.). The Bank will consult with the Working Group in its retail debt planning, reporting and communication activities (e.g. Annual Budget Plan, Medium-Term Plan, etc.) to ensure alignment with the approved Retail Debt Program Business Plan.
Any issues arising out of the respective planning processes will be resolved by using the Escalation Process outlined in Section 4.
7.2 Cost Recovery
The costs for systems and operations services provided to the Retail Debt Program will be recovered by the Bank based on timely quarterly invoices. These invoices will be supported by: a) a cost report using the agreed level of detail and format; b) sufficient explanation of budget details for CI&S to meet the requirements of Section 34 of the Financial Administration Act; and c) the detailed financial information that is mutually acceptable to CI&S and the Bank and which has been submitted to the Bank by third party service providers. Invoices and supplementary information will be in the form set out in Annex IV. Along with each invoice, the Bank will include the third party contractor's invoices and information reports. Changes can be made using the Change Management Process (see Section 3). In order to meet planning and reporting requirements, CI&S, in consultation with the Bank, shall prepare an annual transaction volume (referred to as the Flight Plan) forecast, no later than April 30 each year. This forecast will be reviewed, and updated as necessary in June and August, by CI&S. The Bank will use the Flight Plan as input to its annual budget forecast. As well, the Bank will prepare a 3-year forecast based on the costing model, and in the quarterly report will provide an explanation of variances (these numbers will be adjusted to a government fiscal year basis).
The Bank will manage its expenses (direct and indirect costs) in a manner consistent with the budget agreed to in the Retail Debt Program's Business Plan approved by the Minister of Finance.
Well in advance of obtaining the Bank's internal approval, where the Bank is aware of any material cost overrun, it will give notice of such overrun to the Working Group and, if necessary, the Steering Committee, who will follow appropriate Treasury Board procedures to obtain approval for the expenditure. This includes overruns to the operating budget and major initiatives exceeding cost estimates within predetermined confidence levels. CI&S acknowledges that where there has been a CI&S-requested change to the Bank's work plan for the year that there may be an impact on the Bank's budget. Prior to proceeding with the CI&S change, the Bank will quantify the impact and, if necessary, and upon request by CI&S, the Bank will seek approval for the incremental costs added to its budget. Each such change will be made using the Change Management Process set out in Section 3.
CI&S and FSP acknowledge that circumstances may unexpectedly arise that affect Bank costs. In these instances, the Bank will inform CI&S of the issue and together the parties will develop and implement a response. Should an increase to the Bank's budget be required, CI&S will seek approval for the cost overrun.
The annual qualitative assessment referred to in Section 8 includes the Expense Management Indicators set out in Annex III.
7.3 Audits
The Bank will arrange for its internal auditors to issue a letter to the President and CEO of CI&S on the expenses invoiced by the Bank for the year and express an opinion that:
i. the direct costs incurred to provide back-office systems and operation services to the Retail Debt Program are fairly stated and directly attributable to the program;
ii. the allocation bases used to allocate indirect costs to the Retail Debt Program are appropriate and fairly reflect the program's usage of the underlying services;
iii. the indirect costs allocated are related to the Retail Debt Program and are fairly stated;
iv. the total costs charged back to the Retail Debt Program are representative of the costs incurred to provide back-office systems and operation services to the Retail Debt Program.
Any financial or performance audits of the operational support services provided by the Bank which may be required by the Department of Finance or CI&S will be conducted by the auditors appointed by the Governor-in-Council pursuant to Section 28 of the Bank of Canada Act.
8. MOU Reviews
The Bank, CI&S and FSP will undertake a qualitative assessment annually of the utility of this MOU and the effectiveness of the working relationship between the parties. This assessment will include an examination of the number of times the escalation process used by the parties has reached the Working Group and Steering Committee levels.
9. Confidentiality
Both Finance and the Bank will maintain a level of confidentiality over information relayed from one party to the other in all matters related to the Retail Debt Program that is consistent with applicable legislation and commercial standards of business protection. Thus, the Bank will not publish any documents related to the Retail Debt Program without consulting with Finance and CI&S.
10. Term of Memorandum of Understanding
This MOU will replace the MOU in effect from April 1, 2000 and shall remain in effect unless terminated. This MOU may be terminated with agreement of the parties giving six months' written notice.
11. Approval of the Memorandum of Understanding
This MOU is entered into bythe Bank of Canada,Canada Investment and Savings, a Special Operating Agency of the Department of Finance and Financial Sector Policy Branch of the Department of Finance, Government of Canada on this twentieth day of March, 2003.
| By: | By: |
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| Sheryl Kennedy Deputy Governor Bank of Canada |
Jacqueline Orange President and Chief Executive Officer Canada Investment & Savings |
| By: ___________________________ |
| Bob Hamilton Assistant Deputy Minister Financial Sector Policy Branch |
Annex I
Roles and Responsibilities
Codes: L = Lead; D = Do; A = Advise; S = Support
The following is intended to provide guidance to both the Bank and CI&S with respect to their respective roles and responsibilities for the retail debt program. This list is intended to cover both cash and payroll markets, non-registered and registered. It is not intended to be an exhaustive and/or definitive list and is subject to change with the consent of all parties
In the event of any inconsistency between this Annex and the Memorandum of Understanding to which it is attached, the terms of the Memorandum of Understanding shall prevail.
I. CI&S' Business Planning and Evaluation CI&S BofC FSP
- Interpret policy LD AS LA
- Develop strategic plan LD AS AS
- Develop business plan and budget LD AS AS
- Obtain Ministerial budget approval LD AS S
- Evaluate program LD AS AS
II. Bank Business Planning and Evaluation
CI&S BofC FSP
- Develop Bank's business plan and budget AS LD AS
- Obtain approval from CI&S for budget/work plan AS LD AS
- Obtain approval from Board for budget AS LD AS
- Evaluate program AS LD AS
III. Research and Develop Product
CI&S BofC FSP
- Policy Fit Evaluation LD AS A
- Conduct market research LD AS -
- Analyse market data/client transactions LD AS -
- Design and test product concepts LD AS -
- Prepare Business Cases LD AS AS
IV. Manufacture Product
CI&S BofC FSP
- Obtain Ministerial/budget approval LD AS A
- Define cash/payroll product policies LD AS A
- Define cash/payroll product requirements LD AS A
- Define customer forms/reporting L DAS -
- Define customer service strategy L DAS A
- Manage compliance eligibility LA DS -
- Price products LD AS AS
- Define systems technology strategy A LDS A
- Define systems development priorities LADS LADS A
- Build supporting systems* AS LD -
- Define/build operational/business processes AS LD -
* includes Release Management
V. Customer/Media Marketing Communications CI&S BofC FSP
- Research customer needs/wants LD AS -
- Analyze customer purchase habits LD AS -
- Promote brands and products LD AS -
- Educate client LD AS -
- Co-ordinate customer messaging LD AS -
- Develop media/PR messaging LADS L*ADS A
- Manage the Web Site L DAS -
*back office bondholder issues only
VI. Distribute Product
CI&S BofC FSP
- Investigate/research distribution channels LD AS -
- Maintain and enhance payroll channel LD AS -
- Maintain and enhance cash channel LD AS -
- Negotiate distribution terms and conditions LD AS A
- Maintain channel relationships - sales LD AS -
- Maintain channel relationships - operations AS LD -
- Provide channel materials/training LD AS -
- Sales Agent Channel compensation L DAS -
- Provide payroll sales admin support LADS - -
VII. Process Customer Transactions*
CI&S BofC FSP
- Define service standards LA LADS A
- Process Customer** Enrollments A LDS -
- Process customer financial transactions A LDS -
- Process customer non-financial transactions A LDS -
- Process customer corrections A LDS -
- Process customer reporting A LDS -
- Process regulatory reporting A LDS -
* includes both cash and payroll transactions and is generally meant to refer to, but is not limited to, purchases, redemptions, transfers and exchanges, distribution of income, disbursement of funds
** customers can be individuals, companies, and or sales agents and can be enrolled through a variety of channels
VIII. Service Client
CI&S BofC FSP
- Respond to* customer written requests A LDS -
- Respond to* customer phone requests A LDS -
- Respond to* customer Web site requests A LDS -
- Respond to* customer fax requests A LDS -
* includes responding to customer enquiries with respect to product features, requests for additional information, procedures, policies, forms, direct purchase forms, etc as well information regarding personal holdings
IX. Operational Change Process CI&S BofC FSP
- Continuous Improvement Program A LDS AS
- Implement change process A LDS -
Annex II
Change Management Process
The purpose of the Change Management Process is to ensure that the Retail Debt Program evolves in a manner that is consistent with the program's vision, mandate and Business Plan and in a manner that provides for clear accountability and management efficiency.
All change initiatives will be sponsored by a Vice President of CI&S or the Director of the Debt Administration Office of the Bank of Canada. Sponsors will be responsible to ensure that projects are appropriately funded through the Business Plan or amendments to the Business Plan, and that all Stakeholders are consulted on all relevant policy issues.
The Steering Committee is the funding authority, normally through the approval of the Business Plan or by approving subsequent initiatives where needed. The Working Group provides consultation to sponsors and support to the Steering Committee.
All initiatives will be managed through the process as agreed to in Schedule 6.1 of the Retail Debt Service Agreement and the interface processes developed between the Bank and CI&S. In the event of any inconsistency between this Annex and the Memorandum of Understanding to which it is attached, the terms of the Memorandum of Understanding shall prevail.
Annex III
Service Standards
I. Operational Service Standards
All operational service standards will be as documented in Schedule 4.1 of the Retail Debt Services Agreement (RDSA), effective September 1, 2001, between the Bank and EDS. The Bank and CI&S will review these service standards annually (or more frequently as agreed by the parties) and changes can be made using the Change Management Process (see Section 3).
II. Expense Management Indicators
- Compare Actual Expense to Budget Dollars
- Compare Actual Complement to Budget Allocation (Direct Costs)
- Full - Time Equivalents
- Contract
- New Initiatives Cost
- Quarterly reports with explanation of variances within three weeks of end of quarter
- Quarterly invoices within three weeks of end of quarter
Annex IV
Retail Debt Quarterly Invoice Supplementary Information
Explanations of Cost Elements and Indirect Cost Drivers
The following describes the cost elements that will be provided to explain variances from plan for the quarterly invoice supplementary information.
DAO - Internal Operations:
DAO internal operations includes all direct expenditures related to Salaries and Benefits, Other and Depreciation. As well, it includes all indirect costs in support of retail debt.
Direct Costs
Salaries, legislated and optional benefits for the staff in DAO who are 100% dedicated to Retail Debt.
Other direct costs
includes such expenditures as consulting fees, travel, professional development, miscellaneous stationery supplies and office equipment.
Depreciation details will be provided based on the schedule in appendix 1.
Indirect Costs
A fixed amount negotiated with Corporate Services annually.
Staff Benefits: Based on a percentage of payroll
Automation:
AOLAN Based on number of workstations
Network Based on number of connections BSS 1 Contract Staff
Facilities Based on square foot usage
Corporate Services Based on a percentage of total Bank corporate services expense, includes;
Legal (internal and external services), Library, Archives, continuous learning, employee services, corporate reporting, compensation and benefits administration, procurement and accounts payable.
Corporate Governance:
Executive Based on percentage of total Bank expenses for corporate governance
Executive Services Based on percentage of total Bank expenses for services
Audit External fees and percentage of internal Bank expenses
DAO - Outsourced Contracts
Due to the magnitude of the expenses, the DAO-Outsourced contracts are identified separately.
- EDS Baseline Operations - Based on negotiated costs for fixed, variable, and direct sales
- EDS Innovation - Based on negotiated costs which includes consulting rates for all projects
- CMT Operations - Based on negotiated costs for calls, accounts, subscriptions, and financial transactions
- CMT Development - Based upon agreed development initiatives.
Annex V
Arrangement with EDS
The Bank of Canada has signed a 9.5 year agreement with EDS Canada Inc. to perform substantially all of the Bank's back-office support services relating to the Retail Debt Program. The agreement became effective September 1, 2001 and will expire on March 31, 2011.
The agreement with EDS Canada Inc. reflects all of the service standards agreed to between the Bank and CI&S, as well as all legislative requirements, including all security and privacy requirements, which must be met by either the Bank or EDS.
Regular information about EDS Canada Inc.'s performance will be provided to the Bank so that their performance can be monitored. In addition, regular independent audits of all relevant areas within EDS Canada Inc. will be undertaken by the Bank.
A governance framework has been established to manage the all aspects of the contractual relationship, including day-to-day contract management issues.
