The Canadian Office of the
Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote
comprehensive credit insurance ("CCI") within its
Canadian branches under the Insurance Business (Banks and Bank
Holdings Companies) Regulations (the
The Regulations restrict the insurance
business activities of deposit-taking financial institutions. In
order for a bank to promote insurance, it must be an
"authorized type of insurance" as defined in the
Regulations. In coming to its conclusion as to whether a bank can
promote CCI, OSFI considered whether CCI could fall under the
category of export credit insurance ("ECI") — the
only authorized type of insurance relevant in the
In its analysis, OSFI, using
well-accepted principles of statutory interpretation endorsed by
the Supreme Court of Canada, noted that the intention behind the
Regulations is to "ensure that, on the whole, insurance
continues to be sold by qualified, licensed insurance brokers and
agents working independently of any deposit-taking
institution." This, along with the tenet of statutory
interpretation that exceptions to general prohibitions are to be
strictly construed, suggested that CCI must clearly constitute ECI
for a bank to be permitted to engage in this activity.
With this view, OSFI determined that
ECI is strictly confined to the coverage of losses incurred by
exporters due to a non-payment for exported goods or services.
Given that CCI would not be confined to such losses, OSFI ruled
that CCI does not constitute ECI and therefore, a bank may not
promote a CCI policy within its Canadian branches.
Revisiting the Regulations
It should be noted that the Regulations
do not preclude a Canadian bank from carrying on any aspect of the
business of insurance, other than the underwriting of insurance,
outside of Canada. Consequently, if the CCI policy were to be
offered in branches of the Canadian bank in a foreign jurisdiction,
such offering would be permitted provided the laws of the
jurisdiction in which the branch was located did not preclude the
activity. In addition, the problem appears to be that the CCI
policy was not restricted to the export of goods and services.
Presumably, the same policy could be offered in Canadian branches
if the policy was revised to insure only non-payment by a purchaser
located outside of Canada.
While this ruling seems
uncontroversial, it may raise the question of whether the
Regulations should be revisited and in particular, whether the
"authorized type of insurance" categories need to be
Stakeholder groups have long disagreed
about bank involvement in the insurance business and whether
existing restrictions on bank retailing of insurance products
should be removed. Areas of disagreement include whether the
removal of current restrictions would increase or decrease
competition among suppliers of insurance products and what effect
this would have on consumers, for instance, their access to
insurance products along with the quality of service they would
receive. Much has changed in the world of financial services since
the time the Regulations were enacted and there are some who
believe that distribution limitations that were considered
necessary in the 1990s are not as relevant as we move toward the
third decade of the 21st century.
The Canadian Department of Finance's Review
Stakeholders have the opportunity to
make submissions on the Regulations as the Canadian Department of
Finance (the "Department") begins the process of updating
federal financial institution legislation, including the Bank
Act. The Department's consultation document sets out
three policy objectives to guide the review: stability, efficiency
and utility. Please see our summary of the consultation
document here. While the subject of bank involvement in the
retailing of insurance products is not specifically addressed in
the review, stakeholders may share their positions in their
submissions to the Department by November 15,
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