On December 16, 2011, Minister of Finance Jim Flaherty announced that the government of Canada will soon introduce legislation to prevent banks from offering financial products that produce the same results as life annuities offered by insurers. In Canada, life annuities are treated as insurance products and, under existing legislation, banks are prohibited from undertaking the business of insurance except for limited (essentially credit-related) authorized types of insurance. Life insurers in Canada are, on the other hand, authorized to issue life annuities, in respect of which they must maintain appropriate levels of long-term capital and reserves.
In recent years, some Canadian banks had introduced products that performed in ways similar to life annuities. As the minister of finance remarked, these bank annuity-like products are not subject to the same regulatory standards as life annuities sold by insurance companies. In order to further separate the businesses of banking and insurance, Mr. Flaherty will introduce legislative amendments early in 2012 to prohibit banks from offering such annuity-like products. It is expected, however, that the legislative amendments will grandfather existing products, subject to certain conditions.
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