Canada: Federal Financial Institutions Legislative And Regulatory Reporter — October 2018

The Reporter provides a monthly summary of Canadian federal legislative and regulatory developments of relevance to federally regulated financial institutions. It does not address Canadian provincial financial services legislative and regulatory developments, although this information is tracked by BLG and can be provided on request. In addition, purely technical and administrative changes (such as changes to reporting forms) are not covered.

October 2018

Institution Published Title and Brief Summary Status
Finance Canada October 29, 2018 Bill C-86, A second Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures

On October 29, 2018, Budget Implementation Act, 2018, No. 2 (Short title) was introduced at the Parliament of Canada.
  • Subdivision A of Division 3 of Part 4 amends the Trust and Loan Companies Act, the Bank Act and the Insurance Companies Act to (a) establish thresholds below which the acquisition of control of certain entities, or the acquisition or increase of a substantial investment in them, does not require the approval of the Superintendent of Financial Institutions; (b) allow financial institutions to invest in the Canadian business growth fund; and (c) ensure that customers can provide consent electronically to receive electronic documents.
  • Subdivision B of Division 3 of Part 4 amends the Canada Deposit Insurance Corporation Act to: (a) make technical amendments to clarify the method of calculating insured deposits, to remove outdated references, to repeal certain provisions not yet in force, and to clarify that withdrawals made following the amalgamation of two or more member institutions or the continuance as a federal credit union will be considered to be made from pre-existing deposits and that the separation of accounts following the amalgamation is limited to a period of two years; (b) exclude amounts borrowed by the Canada Deposit Insurance Corporation under paragraph 60.2(2)(c) of the Financial Administration Act from the calculation of the Corporation's total principal indebtedness; and (c) clarify that the liquidator of a member institution of the Canada Deposit Insurance Corporation must not apply the law of set-off or compensation to a claim related to insured deposits.
  • Subdivision C of Division 3 of Part 4 amends the Office of the Superintendent of Financial Institutions Act, the Trust and Loan Companies Act, the Bank Act and the Insurance Companies Act to, among other things, clarify that providing legally privileged information to the Superintendent of Financial Institutions does not constitute a waiver of the privilege.
  • Division 4 of Part 4 amends the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to remove the right of persons to decide not to proceed further with importing or exporting currency or monetary instruments that are required to be reported.
  • Division 6 of Part 4 amends the Canada Business Corporations Act to set out criteria for identifying individuals with significant control over a corporation. The Division also sets out a requirement for a corporation that meets certain criteria to keep a register of individuals with significant control and requirements respecting the information to be recorded in it. Finally, the Division includes applicable offences and punishments.
  • Division 10 of Part 4 amends the Bank Act to strengthen provisions that apply to a bank or an authorized foreign bank in relation to the protection of customers and the public. It implements enhancements in the areas of corporate governance, responsible business conduct, disclosure and transparency, and redress. It also amends the Financial Consumer Agency of Canada Act to strengthen the mandate of the Financial Consumer Agency of Canada and grant additional powers to that Agency.
House Second Reading November 6, 2018; referred to Standing Committee on Finance
FATF October 25, 2018 Risk-based Approach Guidance for the Life Insurance Sector

The risk-based guidance for the life insurance sector highlights the nature and level of money laundering and terrorist financing risks of the life insurance sector. It provides indications and examples of money laundering and terrorist financing (ML/TF) risks for a range of life insurance products. The guidance highlights that the ML/TF risk assessment should reflect the nature, size and complexity of the business: from a simple risk assessment for less complex life insurers and intermediaries, to a more complex risk assessment that takes into account group-wide risk appetite and framework. The guidance stresses the importance of the involvement of senior management.

The Guidance aims to support the design and implementation of the risk-based approach for the life insurance sector, taking into account national ML/TF risk assessments and legal and regulatory frameworks to combat money laundering and terrorist financing
Effective
FATF October 19, 2018 Regulation of virtual assets

Given the urgent need for an effective global, risk-based response to the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) risks associated with virtual asset financial activities, the FATF has adopted changes to the FATF Recommendations and Glossary that clarify how the Recommendations apply in the case of financial activities involving virtual assets.

The FATF uses the term "virtual asset" to refer to digital representations of value that can be digitally traded or transferred and can be used for payment or investment purposes, including digital representations of value that function as a medium of exchange, a unit of account, and/or a store of value.

These changes add to the Glossary new definitions of "virtual assets" and "virtual asset service providers" — such as exchanges, certain types of wallet providers, and providers of financial services for Initial Coin Offerings (ICOs).

These changes make clear that jurisdictions should ensure that virtual asset service providers are subject to AML/CFT regulations. They should be licensed or registered and subject to monitoring to ensure compliance.
Effective
BIS October 18, 2018 Leverage ratio treatment of client cleared derivatives

This consultative document seeks the views of stakeholders on whether a targeted and limited revision of the leverage ratio's treatment of client cleared derivatives may be warranted, based on the findings of the Committee's review of the impact of the leverage ratio on banks' provision of client clearing services and in consideration of key policy objectives of G20 Leaders both to prevent excessive leverage and improve the quality and quantity of capital in the banking system and to promote central clearing of standardised derivatives contracts.

The range of treatments that the Committee may consider include:
  • no change to the current treatment;
  • an amendment to the treatment of client cleared derivatives to allow cash and non-cash initial margin received from a client to offset the potential future exposure of client cleared derivatives; and
  • alignment of the treatment of client cleared derivatives with the standardised approach for measuring counterparty credit risk exposures. This would have the effect of allowing both cash and non-cash forms of initial margin and variation margin received from a client to offset the replacement cost and potential future exposure amounts of client cleared derivatives.
Comments should be provided by January 16, 2019.
OSFI [Federally Regulated Life Insurance Companies, Fraternal Benefit Societies] October 10, 2018 2019 Life Insurance Capital Adequacy Test (LICAT)

OSFI is issuing the final version of the 2019 LICAT guideline.

In addition to minor edits and clarifications, key changes made to the guideline include:
  • apply the same capital treatment to all leases that will be reported on the balance sheet as a result of IFRS 16 — Leases;
  • create consistency with the upcoming revised Guideline B-5: Asset Securitization;
  • add three credit rating agencies to the list of recognized agencies;
  • specify that mortality risk components apply to group life insurance products; and
  • introduce additional conditions for funds withheld reinsurance arrangements.
Appendix 1 summarizes consultation comments received, organized by theme, along with OSFI responses.
Effective
OSFI [Banks, Bank Holding Companies, Federally Regulated Trust and Loan Companies, Cooperative Retail Associations] October 5, 2018 Proposed changes to Guideline B-12: Interest Rate Risk Management

OSFI is issuing proposed revisions to guideline B-12 Interest Rate Risk Management. The guideline, which was last issued in 2005, provides a risk control framework for managing interest rate risk to prudent level at institutions.

In April 2016, the Basel Committee on Banking Supervision (BCBS) published revisions to the framework for Interest Rate Risk in the Banking Book (IRRBB). OSFI's draft guideline incorporates most of the BCBS guidance to reflect changes in the market, the methods expected to be used by institutions for measuring, managing and monitoring IRRBB, as well as updates related to supervisory practices. OSFI is targeting implementation of the revised guideline for January 1, 2020.
Comments period ended on November 19, 2018.

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