Canada: Financial Institutions Regulatory Update

Copyright 2009, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Financial Services, April 2009


This bulletin will be of interest to federally regulated financial institutions (FRFIs) that carry on a residential mortgage business (Part I) or FRFIs that are participating firms in the Ombudsman for Banking Services and Investments (OBSI) (Part II).

Part I – Under recent amendments to the Bank Act and other FRFI governing statutes, FRFIs that carry on a residential mortgage business will soon have the charges and related disclosures for insurance or guarantees against default of such mortgage loans regulated by the Office of the Superintendent of Financial Institutions (OSFI) and the Financial Consumer Agency of Canada (the FCAC). We recommend that such FRFIs monitor the implementation date of these amendments, and update their legislative compliance management processes, as required.

Part II – Under recent amendments to OBSI's Terms of Reference, FRFIs that are members of OBSI (Members) will be subject to additional requirements and specific time frames within which they will be required to process customer complaints. Members may need to review their complaint-handling procedures and correspondence with complainants to ensure compliance with the Revised Terms of Reference – to view, click here. We also recommend monitoring OBSI's website for more information, including the new implementation date.


On March 12, 2009, the Budget Implementation Act, 2009 (Bill C-10) received royal assent. Although most of the provisions in Bill C-10 that relate to FRFIs address financial institution bailouts, new provisions were introduced to allow the regulation of the charges imposed by FRFIs for insurance or guarantees against a default of a residential mortgage loan.

Upon coming into force, these provisions prohibit FRFIs from charging more than the actual cost for obtaining such insurance or guarantee. The new provisions also provide that the Governor in Council may make regulations relating to the prohibition, including regulations that set out how the actual cost of such insurance or guarantee is to be determined, circumstances in which the FRFI will be exempt from the prohibition and specifics relating to disclosures. The regulations may also set out restrictions on certain arrangements into which the FRFI may enter and payments or other benefits that the FRFI may accept.

Bill C-10 also amends the definition of "consumer provision" in the Financial Consumer Agency of Canada Act to include only the disclosure regulations mentioned above.

These amendments will come into force on the date fixed by order of the Governor in Council. We recommend that FRFIs offering such products monitor the implementation date of these amendments and the related regulations, and update their legislative compliance management processes, as required.


On October 27, 2008, OBSI approved its Revised Terms of Reference. The Revised Terms of Reference describe OBSI's principal powers and duties, the scope of its mandate, its process for receiving, investigating and seeking a resolution of a complaint and the duties of Members.

The target implementation date for the Revised Terms of Reference was April 1, 2009; however, OBSI has recently announced that the implementation date will be delayed, in order to have the Revised Terms of Reference implemented at the same time as the new complaint-handling rules of the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association (MFDA). Additional details regarding how OBSI will implement the new aspects of the Revised Terms of Reference will be provided prior to the new implementation date.

Highlights of the Revised Terms of Reference are summarized below.

1. New Complaint-Handling Procedures: Under the Revised Terms of Reference, within 90 days of receiving a complaint, the Member must provide to the complainant either a substantive response to the complaint or, if the Member is unable to provide a substantive response, a letter that estimates when a substantive response will be provided. In either case, the Member must include a statement that the complainant has the option of escalating the complaint to OBSI, but only after 90 days have elapsed since the complainant commenced the internal complaints process at the Member. As in the current Terms of Reference, a complaint must be escalated to OBSI within 180 days of the receipt in writing of the Member's rejection or proposed resolution of a complaint. OBSI may investigate complaints received after the 180-day deadline if it considers it fair to do so.

2. Enhanced Disclosures: Under the current Terms of Reference, in addition to complying with the requirements relating to complaints procedures in the Member's governing statute, for example, for banks, as set out in subsection 455(3) of the Bank Act, Members must advise complainants about their internal complaint-handling processes and the right to escalate an unresolved complaint to OBSI. Under the Revised Terms of Reference, Members will be expected to promote their internal and external complaint-handling processes through websites, brochures, mailing, e-mails and other means necessary to ensure customers have ready access to them in the event of a complaint. Also under the Revised Terms of Reference, upon the receipt of a complaint, Members must bring to the complainant's attention the details of their internal complaint-handling processes and the complainant's external options, including the right to refer unresolved complaints to OBSI 90 days after commencing the internal complaints process at the Member.

3. Systemic Issues: OBSI's expanded mandate under the Revised Terms of Reference now allows it to identify, and request Members to investigate, potential systemic issues. A "systemic issue" is defined as a matter, such as undisclosed fees or charges, misleading communications, administrative errors or product flaws, discovered in the course of considering a complaint against a Member, which may have caused loss, damage or harm to one or more other customers of the Member in a similar fashion to that experienced by the original complainant. If a Member refuses to co-operate in the investigation of a potential systemic issue, OBSI shall report this to the Member's regulator. If a Member confirms that a systemic issue exists, OBSI will offer to work with it to find a fair resolution, including making recommendations on compensation. If a Member denies that a systemic issue exists, and OBSI disputes that finding, OBSI will refer the matter to the Member's regulator. In addition, OBSI may refer systemic issues that involve potential regulatory or criminal breaches to the appropriate regulatory or law enforcement agency.

These new complaint-handling procedures and enhanced disclosures will impose additional requirements and specific time-frames within which Members will be required to process their complaints. We recommend that FRFIs that are members of OBSI review their complaint-handling procedures and their correspondence with complainants to ensure compliance. We also recommend monitoring OBSI's website for more information, including the new implementation date.

OBSI: OBSI is an independent body that investigates complaints about products and services provided by financial institutions and investment firms. Its objective is to provide impartial resolution of complaints. Membership in OBSI is voluntary.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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