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Government of Canada retail debt program memorandum of understanding between the department of Finance (“Finance”), And the bank of Canada (the “Bank”)
Effective June 1, 2009
- Annex I - Roles and Responsibilities.
- Annex II - Retail Debt Program – Quarterly Financial Reporting
1. Introduction
1.1 Purpose of the Memorandum of Understanding
This Memorandum of Understanding (MOU) establishes how Finance and the Bank will work together to carry out the Government of Canada’s Retail Debt Program (RDP).
It sets out the mandate of the RDP, the program governance, the roles and responsibilities of Finance and the Bank, the planning and budgeting process, and the reporting requirements.
This MOU is aligned with the Government’s annual Debt Management Strategy and the Treasury Management Governance Framework jointly developed by the Department of Finance and Bank of Canada.
1.2 Definition of the Retail Debt Program
- The RDP, 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 whether held within a non-registered or registered plan (e.g. RRSP, RRIF).
2. Mandate of the Retail Debt Program
- to deliver cost-effective funding for the government.
- to maintain public awareness and provide Canadians with access to Government of Canada retail savings bonds.
2.1. Overarching Principles:
- Balance potential cost reduction opportunities with the need to maintain public awareness and provide Canadians with access to Government of Canada retail savings bonds.
- Maintain flexibility to deal with changing circumstances.
3. Program Governance
3.1 Division of responsibilities
The Minister of Finance is responsible for the RDP. The Department of Finance is responsible for providing advice to the Minister on the strategic objectives of the RDP and the overall strategy for achieving those objectives, as well as on decisions relating to the structure of the program and product pricing.
The Bank of Canada, as the Government’s fiscal agent, is responsible for implementation and administration of the RDP. The Bank also provides related advice on planning, policy, pricing and marketing strategy. The Bank is accountable for decisions relating to the execution of the RDP in order to achieve the Mandate approved by the Minister. While the Bank is independently accountable to its Board of Directors, it acknowledges its responsibilities under this MOU to administer the RDP.
3.2 Working relationship
Finance and the Bank commit to work together in a cooperative manner, with each party living up to its responsibilities and accountabilities. The relationship is based on open and frank communications, mutual trust and respect.
3.3. Governance framework
Governance of the RDP is integrated into the Treasury Management Governance Framework, which addresses the governance of all funds management responsibilities carried out by Finance and the Bank (cash balances, foreign reserves, wholesale debt, and retail debt) as well as risk management. Three inter-agency policy advisory committees support the RDP: the Funds Management Committee, the Retail Debt Coordinating Committee, and the Retail Debt Working Group.
3.3.1. Funds Management Committee
The Funds Management Committee (FMC) is a senior management committee, consisting of (Senior) Associate Deputy Minister of Finance (as delegated by the Deputy Minister), Assistant Deputy Minister of Finance (Financial Sector Policy Branch) and Chief (Funds Management and Banking) Bank of Canada . The FMC oversees all treasury management activities.
With respect to retail debt, the FMC approves policy recommendations to bring forward to the Minister including the program objectives, the three-year strategic plan, and the marketing strategy. As delegated by the Minister, the FMC decides on high level priorities and policies, including the annual work plan.
3.3.2. Retail Debt Committee
The Retail Debt Committee (RDC) is a middle management committee, consisting of three Finance officials (the Director - Financial Markets Division, the Chief Debt Management Policy - Financial Markets Division, and the Senior Project Leader responsible for the RDP) and two Bank officials (Deputy Chief - Funds Management and Banking Department, and the Assistant Director - Retail Debt Planning and Policy Advice - Funds Management and Banking Department,). The RDC meets quarterly or more frequently if needed. The RDC makes recommendations to the FMC on retail debt objectives, the three-year strategic plan, the campaign marketing strategy, and the annual work plan. It coordinates program initiatives, and oversees campaign issues and pricing.
3.3.3. Retail Debt Working Group
The Retail Debt Working Group (RDWG) is comprised of day-to-day management and staff from both Finance and the Bank. The Working group develops the three-year strategic plan and the annual work plan for review by the RDC. It undertakes analysis and makes recommendations to the RDC specific to program initiatives such as product development. The Working Group meets monthly or more frequently if needed.
4. Roles and Responsibilities
The governance framework (Section 3) facilitates the coordination of activities between Finance and the Bank, and provides a channel for both parties to provide input and advice on the RDP. Within that governance framework, there is a clear delineation of the roles and responsibilities of Finance and the Bank, consistent with the division of responsibilitiesstated in 3.1. These roles and responsibilities are summarized in Annex I. This Annex may be revised with the written consent of both parties.
In carrying out their respective responsibilities, Finance and the Bank agree on the following:
4.1. Third Party Contracts
From time to time, third party contracts may be used to facilitate the administration of the program. All procurement activities related to the Bank’s administration of the program will be in accordance with the Bank’s procurement policy and procedures.
4.2. Marketing & Communications
Finance and the Bank develop the campaign marketing strategy in line with the strategic direction for RDP. This marketing strategy is subject to the approval of the Minister of Finance.
The Bank will be responsible for the implementation of the strategy including managing the procurement and administration of any advertising contracts as well as overseeing the work of the selected advertising firm(s) as marketing content is developed within the context of the approved marketing strategy.
The Bank will provide Finance with an update of creative concepts for any major project following market testing in order to demonstrate the alignment of the recommended concept with the approved strategy. Under normal circumstances, the recommended creative will be available for the Minister’s approval one month prior to the deadline for public release.
The Bank will also be responsible for fielding public and media inquiries and requests about the RDP that fall within the scope of the Bank’s responsibilities. For media requests specifically, details of the request are to be communicated by email to the key RDP contacts at both the Bank and Finance on a timely basis. The Bank and Finance will coordinate on an appropriate response and action plan. A summary of the response or de-brief of the interview will be circulated to the same participants after the request has been answered.
4.3. Sales Agents and Payroll Representatives
The Bank will establish contractual relationships with the Sales Agents, which will include establishing the commission and paying the authorized sales Agent remuneration on its sales of retail debt products. Commissions are considered as part of the debt servicing costs, and therefore are subject to the final approval of Finance.
The Bank will manage the payroll sales representatives. The Bank will manage the agreements with the payroll employers and will maintain the supporting systems and other resources required to maintain access to the program, but will not actively recruit new employers to the program.
4.4. Interest Rates
Finance will set the interest rates for Retail Products, based on a number of inputs. The Bank will provide an estimate of the following: Applicable Government of Canada zero coupon wholesale rates and RDP gross administrative costs (Bank and Finance) including commission costs. The Bank will also advise on the reasonableness of the option values determined by the commercial provider appointed by Finance. Finance will provide that commercial provider with any information required as input into its estimation process. Finance will also be responsible for monitoring the rates on, and the positioning of the price of Retail Products relative to, other retail products.
4.5. Third Party Complaints/Enquiries
The Bank will respond directly to all third party complaints/enquiries that are operational in nature. Operational complaints/enquiries received directly at Finance should be acknowledged to the third party indicating that the complaint/enquiry has been forwarded to the Bank for action.
The third party complaints/enquiries that are policy related shall be answered directly by Finance. Policy related complaints/enquiries received directly at the Bank will be acknowledged to the third party indicating that the complaint/enquiry has been forwarded to Finance for action.
5. Planning and Budgeting
5.1. Planning process
Each year, the Retail Debt Working Group will develop a three-year strategic plan and an annual work plan for the program based on the overall debt management strategy and the strategic objectives of the RDP. The Working Group will submit the three-year strategic plan along with the notional budget and the annual work plan to the RDC for review and recommendation to the FMC. The three-year strategic plan and notional budget are approved by the FMC.
Under normal circumstances, it is expected that the three-year strategic plan and the annual work plan will be approved at the September FMC meeting of the year proceeding the first year of the three-year plan. The Bank and Finance will have semi-annual planning and review sessions to develop the three-year strategic plan and annual work plan and to track progress.
5.2. Budgeting process
In parallel with the planning process, the Bank of Canada will determine the financial requirements1 associated with RDP’s three-year planning horizon. The first year requirements will be incorporated into the Bank’s proposed annual budget in September, for submission to the Bank’s Board of Directors for approval. The second and third year requirements will be incorporated into the Bank’s medium-term planning process, for approval by the Board of Directors. Under normal circumstances, it is expected that the Board would approve the annual budget by the end of December, prior to the start of the budget year.
Beginning 1 January 2008, all Bank of Canada costs associated with the RDP and previously recovered from the Minister of Finance will no longer be reimbursed. Commissions are considered part of the debt servicing costs, along with interest payments, and will continue to be paid directly by the Government.
In cases where funds remain from the approved RDP budget for the Bank’s expenditures, the Bank will reallocate funds to other areas of the Bank’s business as it deems appropriate.
5.3. Modifications to approved plans and budgets
Any major recommended changes to the approved strategic plan will be brought to the RDC for review and to the FMC for approval. Should a significant change be deemed necessary, Finance and the Bank will first consider reprioritizing the approved work plan and budget allocation so that the change may be accommodated without necessitating additional resources.
To the extent that additional financial resources are required, a letter from the Deputy Minister or the (Senior) Associate Deputy Minister of Finance will be sent to the Governor of the Bank of Canada to explain the need for the change and to request an increase in the approved Bank budget, subject to the approval of the Bank’s Board of Directors.
6. Reporting and Records Keeping
The record keeping associated with sales, redemptions and the outstanding stock will be maintained by the Bank on the government’s behalf.
The following documents are distributed within the Department of Finance and the Bank of Canada and filed in registries on a periodic basis for the purposes of informing senior officials and accountability.
- Quarterly financial reports on variances to the RDP budget, as per Annex II (Bank)
- Semi-annual reports on work plans and status of major initiatives (Bank & Finance)
- Monthly reports on sales, sales agent commissions, redemptions and outstanding stock for the RDP (Bank)
- Campaign period reports for the Minister on retail debt sales and redemptions (Bank)
7. Audits
RDP expenses incurred by the Bank and reported within the Bank's expenditures will be audited by the Bank's external auditors as part of the established annual financial statement audit processes. The internal controls over financial reporting of RDP expenses shall be audited by the Bank's internal auditors as part of the regular internal control over financial reporting audits.
Sales, redemptions, and outstanding stock reported through "The Statement of Government Debt Outstanding" shall be audited by the Bank's external auditors as part of the established annual financial information audit. The internal controls over financial reporting of this information shall be audited by the Bank's internal auditors as part of the regular internal control over financial reporting audits.
8. MOU Reviews
The RDC will undertake annually a qualitative assessment of the utility of this MOU and the effectiveness of the working relationship between the parties. As appropriate, revisions to the MOU will be made.
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 RDP that is consistent with applicable legislation and commercial standards of business protection. Thus, the Bank will not publish any documents related to the RDP without consulting with Finance and vice versa.
10. Term of Memorandum of Understanding
This MOU is effective 1st July 2009, and replaces any earlier MOUs between Finance and the Bank with respect to the RDP. This MOU shall remain in effect unless replaced with an amended MOU or terminated. This MOU may be terminated with one-year notice.
11. Approval of the Memorandum of Understanding
This MOU is entered into bythe Bank of Canada, and Financial Sector Policy Branch of the Department of Finance, Government of Canada on this 1st day of July 2009.
By:
George Pickering
Chief,
Funds Management and Banking
Bank of Canada
By:
Jeremy Rudin
Assistant Deputy Minister,
Financial Sector Policy Branch
Department of Finance
Annex I
Roles and Responsibilities
Broadly speaking, the accountabilities of Finance and the Bank for the RDP are as follows:
- Department Finance is responsible for providing advice to the Minister of Finance on setting the strategic objectives of the RDP and the overall strategy for achieving those objectives. Finance is accountable for decisions relating to the structure of the program and product pricing.
- The Bank of Canada is responsible for implementation and administration of the RDP. The Bank also provides related advice on planning, policy, pricing and marketing strategy. The Bank is accountable for decisions relating to the execution of the RDP in order to achieve the strategic objectives set by the Minister.
Within this framework, it is desirable to clarify the division of responsibility between Finance and the Bank as they carry out the activities related to the RDP. This annex provides a summary of the division of responsibilities for certain key activities. It is not an exhaustive or definitive list but, rather, is intended to provide guidance to Finance and the Bank as they work together to carry out the RDP. This annex is subject to change with the consent of both parties.
Codes:
For activities where Finance and the Bank have shared responsibility:
L = Lead = Lead/initiate a process/analysis
P = Participate = Participate/contribute/assist in a process/analysis
For activities where one party has sole responsibility:
D = Do = responsible for implementing, or overseeing the implementation
A = Advise = responsible for providing input or advice only
| Bank | Finance | |
|---|---|---|
| Develop three-year strategic plan | L | P |
| Develop annual work plan | L | P |
| Develop budget | D | A |
| Obtain FMC approval for annual strategic plan and work plan | P | L |
| Obtain Bank of Canada Board approval for budget | D | - |
| Evaluate program | P | L |
| Bank | Finance | |
|---|---|---|
| Propose modifications to products/channels | L | P |
| Evaluate policy fit of modifications | P | L |
| Prepare business case to assess modifications | L | P |
| Obtain approval for modifications | - | D |
| Bank | Finance | |
|---|---|---|
| Conduct market research (customer needs/wants/habits) |
D | A |
| Recommend a Campaign Marketing Strategy (brand & product promotion, customer messaging, media messaging) |
L | P |
| Obtain Ministerial approval for Campaign Marketing Strategy | P | L |
| Develop marketing creative | D | A |
| Obtain Ministerial sign-off of creative | P | L |
| Execute the Marketing Plan | D | - |
| Rates announcement: beginning of the sales period | - | D |
| Rates announcement: remainder of the sales period | D | - |
| Manage media relations activities | L | P |
| Manage the Web Site www.csb.gc.ca | D | - |
| Bank (Financial Markets Department) |
Finance | |
|---|---|---|
| Initiate process for pricing and re-pricing | - | D |
| Provide inputs for pricing decision | ||
| • Government of Canada zero coupon wholesale rates | D | - |
| • Gross administrative costs Bank | D | - |
| • including commission costs | ||
| • excluding GST charge applicable to the Bank | ||
| • Gross administrative costs Finance | - | D |
| Appoint or extend contract of the commercial provider for options valuations and provide necessary inputs to valuation of the CPB and CSB implicit options | - | D |
| Provide advice as to reasonableness of estimated option values | D | - |
| Monitor prices of other retail products | - | D |
| Recommend pricing to Minister for approval | - | D |
| Bank | Finance | |
|---|---|---|
| Recommend cash/payroll product terms & conditions | L | P |
| Approve cash/payroll product terms & conditions | - | D |
| Define customer forms/reporting | D | - |
| Define customer service strategy | L | P |
| Define systems technology strategy and priorities | D | - |
| Build supporting systems & business processes | D | - |
| Manage operational change process | D | - |
| Bank | Finance | |
|---|---|---|
| Negotiate agreements with sales force, cash & payroll (subject to commission approval by Finance) | D | A |
| Approve commission structure | A | D |
| Maintain payroll and cash channels | D | Finance will be consulted only in the case of any significant issues |
| Maintain channel relationships | D | |
| Provide channel materials/training | D | |
| Initiate payment of sales agent compensation | D |
| Bank | Finance | |
|---|---|---|
| Define service standards | D | A |
| Process customer transactions (enrollments, financial transactions, non-financial transactions, correction) | D | Finance will be consulted only in the case of any significant issues |
| Process customer reporting | D | |
| Process regulatory reporting | D |
| Bank | Finance | |
|---|---|---|
| Respond to operational-related customer inquiries sent to the Minister (such inquiries are to be redirected to the Bank) |
D (Inform Finance of response) |
- |
Respond to customer requests
|
D | Finance will be consulted only in the case of any significant issues or when program policy issues are raised. |
| Bank | Finance | |
|---|---|---|
Record keeping
|
D (part of the Bank’s internal control audit) |
A |
Reporting
|
||
| Record of all transactions related to redemption, sales, commission and interest for the trial balance and Public Accounts | - | D |
Annex II
Retail Debt Program – Quarterly Financial Reporting
As part of this agreement, the Bank will prepare on a quarterly basis a summary report of financial results for the RDP. The report will compare year-to-date actual operating expenses to year-to-date budget for the RDP. The report will provide explanations for variances to budget that are deemed significant to the Bank.
Where the program would incur capital expenditures, the report would include a separate section for those expenditures.
The report will be prepared using the Bank’s internal financial management reporting structures and category of expenses. The following cost categories are shown in the report:
Operating expenses
Bank of Canada – Bank Internal Operations
This category includes Bank of Canada internal costs incurred to manage RDP - activities such as planning, budgeting and forecasting, relationship management, product analysis, contract management, marketing research/analysis, management of sales force, etc.
It also includes indirect operating costs incurred and required to manage the RDP – expenses such as a portion of Bank management as well as a portion of infrastructure and support functions like Financial Services, Legal Services, Human Resources, Information Technology, Facilities and Security, etc.
Bank internal operations costs related to the RDP are treated as a fixed cost category as per agreement with the Department of Finance. Annual increases to the value of this fixed cost category reflect annual general cost increases in the underlying activities listed above.
Third Party (Operations)
This section includes the total of all third party contract expenses, and budgets related to the baseline operations and innovations, under the categories “Ongoing Outsourced Operations” and “Operations Change Management”.
Third Party (Marketing & Communications)
This section includes the total of all third party contract expenses related to advertising, marketing research, design, sales force, warehousing, web hosting, printing, distribution, under the categories “Media Buy/Creative Development” and “Marketing Print and Distribution”.
1 Financial requirements for the Retail Debt Program are defined to include both the direct and indirect operating and capital expenditures required by the Bank to administer the Retail Debt Program. These expenditures include salaries and staff related expenses, third party contracts, a portion of Bank management as well as a portion of infrastructure and support expenditures such as Financial Services, Legal Services, Human Resources, Information Technology, Facilities and Security, etc.
