Government of Canada Retail Debt Program Memorandum of Understanding between the Department of Finance (“Finance”), and the Bank of Canada (the “Bank”)

Effective 15 December 2017

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 3-Year Strategic Plan and the Funds Management Governance Framework jointly developed by Finance and the Bank.

The RDP, for the purposes of this MOU, includes all product management, communications, systems and operations, as well as all financial aspects of Canada Savings Bonds (CSBs) and Canada Premium Bonds (CPBs) whether held within a non-registered or registered plan (e.g. RRSP, RRIF).

• Implement the program wind-down and transition while providing quality service delivery for outstanding retail debt.
• Continue to look for opportunities to reduce overall RDP delivery costs.

In pursuit of the objectives of the mandate, retail debt activities are managed according to the following principles:

• Quality of service delivery: The program should be delivered and represented in a way that adheres to the quality and standards of a Government of Canada program.
• Prudent management: Program investments and costs should seek to balance quality service delivery with effective control of operational expenses.
• Timeliness: Strategic changes to the program should be implemented in a timely manner while managing risks.

The Minister of Finance is responsible for the RDP. 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, 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.

Governance of the RDP is integrated into the Funds 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 Committee, and the Retail Debt Working Group.

The Funds Management Committee (FMC) is a decision-making body responsible for all activities covering the Government’s financial asset and liability functions. The FMC generally meets quarterly, and on an ad hoc basis as required. The FMC is supported by the Debt & Treasury Management Committee, the Foreign Reserves Committee and the Retail Debt Committee.

The FMC’s mandate is composed of two key responsibilities: i) advising the Minister of Finance, through the Deputy Minister or a delegate, on policy and strategy for funds and risk management; and ii) providing overall direction to management and officials with respect to asset and liability management policies and strategies, consistent with the direction provided by the Minister. As required, the FMC may also consider operational issues arising from the work of the other committees where these have important strategic implications.

The FMC also monitors key risks associated with funds management and ensures that sound practices are in place for risk identification, measurement, monitoring and mitigation. The FMC is responsible for considering the risks associated with its decisions, and addressing these as deemed appropriate. In addition, the FMC reviews performance outcome reports and ensures the regular conduct of program reviews and evaluations. The FMC serves as an advisory body to Finance Audit and Evaluation Committee with respect to treasury evaluations.

The FMC is composed of the following members:

The Retail Debt Committee (RDC) is a decision-making body responsible for overseeing the RDP. The RDC develops annual work plans for the year, coordinates program initiatives, and oversees campaign issues and pricing. It also provides recommendations to the FMC on overall retail debt strategy and the parameters for the annual pricing of retail debt. The RDC is accountable to the FMC with respect to the management of the RDP.

The RDC meets regularly (scheduled monthly) or as needed, and is supported by the Retail Debt Working Group, which includes officers from Finance and the Bank.

The Director of the Financial Risk Office (FRO) at the Bank provides advice to the RDC on risk issues associated with the RDP, identifies risks related to new policy and operational initiatives under consideration, and outlines options for addressing them. Advice provided by the Director of FRO is an integral part of the RDC’s policy development and approval process. The RDC is responsible for considering and addressing as deemed appropriate, the risk issues identified by FRO.

The Bank provides secretariat functions for RDC meetings.

The Retail Debt Working Group (RDWG) is comprised of day-to-day management and staff from both Finance and the Bank. It is co-chaired by the Director of the Debt Management Policy Section – Funds Management Division from Finance and the Director of Retail Wholesale Debt Administration – Funds Management and Banking Department from the Bank.

The RDWG develops the three-year strategic plan for review and approval by the RDC. It undertakes analysis and makes recommendations to the RDC specific to program initiatives such as product adjustments. The RDWG meets monthly or more frequently if needed.

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 may be revised with the written consent of both parties.

In carrying out their respective responsibilities, Finance and the Bank agree on the following:

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. Where there are reputational or policy concerns in relation to the engagement of external parties, such procurement activities will be conducted in consultation with Finance, under the authorities delegated by the Minister of Finance.

The Bank with the support from Finance develops the communications strategy in line with the strategic direction for the RDP and leverages communications for the purposes of the wind-down.This communications strategy is subject to consultation with the Department of Finance.

The Bank will be responsible for the implementation of the communication strategy including managing the procurement and administration of any contracts in relation to communication activities.

The Bank will 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 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.

The Bank will maintain the supporting systems and other resources required to administrate the Payroll Savings Program. For retail debt currently outstanding, the Bank will manage contractual relationships and commissions payments. Commissions are considered part of the debt servicing costs, and therefore are subject to the final approval from Finance.

Finance will set the interest rates for retail debt products, based on a number of inputs. The Bank will provide an estimate of the following: applicable Government of Canada zero coupon wholesale bond and treasury bill rates, RDP gross administrative costs (Bank and Finance) including commission costs, and retail debt option values. The Bank will also be responsible for monitoring the rates on other retail products.

Finance is responsible for pricing retail debt products in accordance with the RDP’s objectives.

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 by Finance 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 by the Bank to the third party indicating that the complaint/enquiry has been forwarded to Finance for action.

Each year, the RDWG will develop a three-year strategic plan for the program consistent with the strategic objectives of the RDP. The RDWG will submit the three-year strategic plan to the RDC for review and approval. The three-year strategic plan may either be submitted to the FMC for approval or provided as an information item if deemed appropriate by the RDC, depending on the initiatives outlined in the plan.

The three-year strategic plan is a rolling plan and, as such, will be approved annually at the RDC level. Relevant policy considerations will be forwarded to the FMC at the recommendation of the RDC. The RDWG will track progress of the three-year strategic plan and report any significant variances to the RDC in a timely manner.

In parallel with the planning process, the Bank will determine the financial requirements¹ associated with the RDP three-year planning horizon.

The first-year requirements will be incorporated into the Bank’s proposed annual budget submitted to the Bank’s Board of Directors for approval. Second and third-year requirements will be incorporated into the Bank’s medium-term planning process. Normally the Bank’s Board of Directors would approve the annual budget by the end of December, prior to the start of the budget year.

The Bank is responsible for all costs associated with the RDP except interest payments and commissions, which are considered part of the debt servicing costs and are paid directly by the Government.

Any recommended changes to the approved strategic plan will be brought to the RDC for review and approval and to the FMC if deemed appropriate by the RDC. 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.

The record keeping associated with the issuance of continuous reinvestment series, redemptions and the outstanding stock will be maintained by the Bank on the government’s behalf.

The following documents are distributed within Finance and the Bank 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 I (Bank)
• Monthly reports on redemptions and outstanding stock for the RDP (Bank)
• A yearly report summarizing redemptions, and any major changes or trends for the RDP

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.

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.

The RDC will undertake as needed 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.

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.

This MOU is effective 15 December 2017 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.

This MOU is entered into by the Bank, and Financial Sector Policy Branch of Finance, Government of Canada on this 15th day of December 2017.

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.