Federally Regulated Financial Institutions ("FRFIs") will soon be facing new regulations requiring certain disclosure with respect to registered retirement savings plans ("RRSPs"), registered education savings plans ("RESPs"), tax free savings accounts ("TFSAs"), registered disability savings plans ("RDSPs"), and products such as guaranteed investment certificates ("GICs") and principal protected notes ("PPNs") that are related to registered plans.
The Department of Finance published a notice of three new proposed regulations in the Canada Gazette on June 12, 2010: the Deposit Type Instrument Regulations; Prescribed Products Regulations; and Registered Products Regulations (the "Proposed Regulations"), which will expressly require FRFIs to provide certain specific disclosure to consumers on "deposit type instruments," "prescribed products" and "registered products" (defined in the respective regulations and discussed below).
The Proposed Regulations are an important development that will enable the Government of Canada to continue to implement the policies initially discussed in their policy paper entitled 2006 Financial Institutions Legislation Review: Proposals for an Effective and Efficient Financial Services Framework and enacted through Bill C-37, An Act to amend the law governing financial institutions and to provide for related and consequential matters.
New Disclosure Obligations for Registered and Prescribed Products
FRFIs have an existing obligation to make certain disclosure to customers prior to opening a deposit account.1 In the past, financial institutions have argued that these disclosure requirements regarding deposit accounts do not apply to registered products. The Financial Consumer Agency of Canada has published a summary of a previous compliance case on section 445(1) of the Bank Act that specifically states that the requirements of the Bank Act and related regulations apply to deposit accounts, even if they are held within registered retirement savings accounts.
Bill C-37 enacted amendments to federal legislation to specifically require disclosure in connection with registered products and prescribed products. Banks and authorized foreign banks will be required to disclose the following information before a registered account that forms part of a registered product is opened in the name of the customer or entering into an agreement with a customer for a prescribed product that forms part of a registered product: (1) all charges applicable to the registered product; (2) the manner that the customer will be notified of any increase in such charges or any new charges applicable to the registered product and (3) any other prescribed information.2 Similar obligations will be imposed on trust and loan companies and retail associations when these sections are brought into force.3
According to the proposed Registered Product Regulations, a "registered product" will include the following products that are issued by an institution to a natural person: RRSPs, RESPs, TFSAs, RDSPs and certain other plans, arrangements or funds. "Prescribed products" are specified in the Prescribed Product Regulations as "deposit type instruments" (which are defined in the proposed Deposit Type Instrument Regulations discussed below) and "principal protected notes" (defined in the existing Principal Protected Notes Regulations) are also included.4
The Registered Products Regulations also mandate the manner of disclosure required under the respective federal acts. These regulations will provide a limited exception from the new disclosure obligations, e.g., the account to be opened, or the agreement that will be entered into, form part of the customer's existing registered product or where the customer has been previously advised in writing of all charged in respect of the registered product. The proposed Registered Product Regulations further require all disclosed information to be made in language and presented in a manner that is "clear, simple and not misleading". It also mandates certain additional disclosure requirements depending on whether the information is presented to the customer in person, by telephone or through electronic means. These proposed regulations will also require FRFIs to disclose proposed amendments to the customer in writing and will also require FRFIs to maintain and make available a list of charges applicable to registered products at each of its branches or offices, points of service, and on websites where registered products are offered.
Additional Specific Disclosure for "Deposit Type Instruments"
The proposed Deposit Type Instrument Regulations define "deposit type instrument" as a product that is issued in Canada by an institution, that is related to a deposit and that specifies a fixed investment period and (a) a fixed rate of interest; or (b) a variable rate of interest that is calculated on the basis of the institution's prime lending rate or bankers' acceptance rate."
In a regulatory impact statement released in connection with the Proposed Regulations, the Department of Finance noted that "while deposit accounts, e.g., savings or chequing accounts, and deposit type instruments, e.g., [GICs] and term deposits, do share some basic characteristics such as generating savings from a rate of interest, there are several important differences that are not currently addressed under the disclosure regime related to deposit accounts or that render several existing disclosure requirements irrelevant or inappropriate." As a result, the Department of Finance has mandated certain disclosure requirements that are specific to the type of product a consumer is purchasing in the proposed Deposit Type Instrument Regulations, which will come into force when registered.
Similar to other new disclosure requirements mandated by the Department of Finance, the required information relating to deposit type instruments must be disclosed in language, and presented in a manner, that is clear, simple and not misleading. These proposed regulations will require FRFIs to disclose certain mandated information before a customer enters into an agreement with the information both orally and in writing (but subject to exceptions for agreements entered into by telephone and electronic means), provide subsequent disclosure, and include specific content in advertisements.
Voice Your Opinion
As part of its regulatory impact statement, the Department of Finance noted that the Government received comments from about 30 stakeholders in connection with the development of Bill C-37. The Department of Finance has invited interested parties to make representations concerning the Proposed Regulations by July 12, 2010. As always, BLG would be pleased to assist our clients and represent their interests during the consultative phase, and as these new disclosure requirements move forward.
1. Sections 445(1) and 560(1) of the Bank Act, section 431(1) of the Trust and Loan Companies Act, and section 385.1(1) of the Cooperative Credit Associations Act.
2. Sections 448.3 and 566.1 of the Bank Act.
3. Sections 434.1 of the Trust and Loan Companies Act and 385.131 of the Cooperative Credit Associations Act.
4. Bill C-37 also enacted amendments to federal legislation to restrict banks, authorized foreign banks, retail associations and companies from directly or indirectly charging any sum for providing any "prescribed product" or service unless the charge is made through an express agreement with the customer. The Prescribed Products Regulations will also apply to sections 457 and 547.1 of the Bank Act, 442.1 of the Trust and Loan Companies Act and 385.241 of the Cooperative Credit Associations Act, when they are brought into force and the regulations are registered.
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