On June 14, 2006, the federal government released its long-awaited White Paper on the review of the federal financial institutions legislation. The White Paper, which outlines proposed amendments to key financial institutions legislation, including the Bank Act and the Insurance Companies Act, is the latest step in a review process that was commenced in early 2005. Legislation had been due in order to meet the October 2006 statutory review deadline. However, readers of our most recent Insurance Law Update may recall that, as part of the federal budget delivered earlier this year, the so-called "sunset provisions" in the various Acts were extended to April of 2007, with legislation to implement the White Paper’s proposed amendments expected this Fall.
While the White Paper addresses increasing the maximum loan-to-value ratio for conventional mortgages and broadening the cost of borrowing disclosure rules, perhaps most notable is the absence of any reference to the hotly debated issue of the ability of chartered banks to promote or distribute insurance products via their branch networks. During the last year, the chartered banks, and their insurance arms, had lobbied aggressively in favour of lifting or lightening the existing restrictions, while brokers and some insurers had lobbied in favour of maintaining the status quo. The Conservatives have kept their campaign promise that there would be no change to the current distribution rules, and indeed the White Paper fails to make even a passing reference to the issue.
With respect to the banking industry, perhaps the most notable proposal is the increase in the conventional maximum loan-to-value ratio from 75% to 80%. This will undoubtedly have an impact on the banks’ lending practices and may decrease the market for mortgage insurance. Consistent with the government’s ongoing efforts to increase consumer confidence in the financial services industry, the White Paper contains proposals to, among other things:
- introduce a new disclosure regime for deposit products linked to investment indices;
- require all federally regulated financial institutions to disclose their administration fees in respect of deposit-type registered plans, and to provide notice of any increases in these charges;
- harmonize online and in-branch disclosure requirements;
- require that complaint-handling procedures at federally regulated financial institutions be made publicly available both in branches and online;
- allow financial institutions to use electronic cheque imaging in the cheque clearing system;
- narrow the foreign bank entry framework to focus on "real" foreign banks rather than "near" banks undertaking unregulated financial services;
- amend the Cost of Borrowing Regulations to clarify that all co-borrowers must receive the required Cost of Borrowing disclosure documentation and to provide guidance respecting how Cost of Borrowing disclosure is to be reflected in credit agreements; and
- streamline the current regulatory approval regime in financial sector transactions in such areas as liquidation, discontinuance, amalgamation, investments, name changes, transfers of business within corporate groups, and large dividends. Specifically, the White Paper proposes the elimination of Superintendent approval in the information or data processing outside of Canada. Certain other Superintendent approvals for transactions involving information technology and other ancillary services will be removed. and replaced by a deemed approval process.
In an effort to further reduce the regulatory burden on insurers, the White Paper contains proposals to, among other things:
amend the federal Insurance Companies Act to reflect the classes of insurance recently harmonized with provincial regulators;
- exempt reinsurers from Financial Consumers Agency of Canada oversight, including in relation to assessments and the dispute-handling requirements;
- provide long-awaited clarification on the application of the Insurance Companies Act to foreign companies carrying on business in Canada and, in particular, the interpretation of "in Canada insure a risk" in subsection 573(1);
- in respect of foreign insurance companies, require that the officers or employees who are responsible for complaints, and the relevant independent complaint handling bodies, reside or be located within Canada;
- eliminate the requirement for Superintendent approval to authorize a trustee to release a foreign company’s vested assets, in connection with transferring outstanding policies in Canada;
- provide an exemption from the requirement for Superintendent approval for transfers from segregated funds where the withdrawal relates to the removal of seed money;
- remove the requirement for Ministerial approval for "out of the ordinary course of business" indemnity reinsurance transactions, transfers and purchases of policies;
- remove the requirement for Ministerial approval for companies assuming policies in assumption reinsurance transactions, shifting the approval requirement for all such transactions to the Superintendent, except in the case of a Canadian company ceding all or substantially all of its policies;
- give insurers that provide only marine insurance the option to be subject to federal prudential oversight; and
- as noted above, streamline the current regulatory approval regime in financial sector transactions in such areas as liquidation, discontinuance, amalgamation, investments, name changes, transfers of business within corporate groups, reinsurance agreements, and large dividends. Specifically, the White Paper proposes the elimination of Superintendent approval for the processing of information or data outside of Canada. Certain other Superintendent approvals for transactions involving information technology and other ancillary services will be removed.
The entire White Paper is available on-line. Comments to the Department of Finance on the implementation of the proposals are due by July 21, 2006.
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