Quebec's Minister of Finance and the Economy Nicolas Marceau tabled a report in the National Assembly on April 30, 2013 entitled Report on the Application of the Act respecting insurance and the Act respecting trust companies and savings companies. The content of the report results from industry consultations and the participation of the Autorité des marchés financiers (AMF), the regulatory body responsible for enforcing the legislative framework applicable to the financial sector in Quebec.
The report contains a total of 52 proposals to amend the Act respecting insurance and the Act respecting trust companies and savings companies. The proposals are meant to modernize, simplify and harmonize the legislative framework applicable to insurance, trust and savings (loan) companies (also referred to as financial institutions in this bulletin) to provide them the opportunity to develop, while maintaining the proper level of public protection. It also proposes, where appropriate, to apply relevant rules governing corporations under Quebec's Business Corporations Act (BCA) to these financial institutions (Proposal #1).
The large majority of the proposals affect financial institutions constituted under the Quebec legislation. Certain proposals also affect financial institutions constituted under laws other than Quebec, including the proposal to limit the obligation of reinsurers incorporated in another jurisdiction and doing business in Quebec to obtain certification with the AMF, rather than have such reinsurers subject to the entire insurance regulatory regime (Proposal #47) and those regarding the role and powers of the AMF discussed below.
Anyone interested in providing written submissions to the Minister on any of the proposals must do so on or before July 1, 2013.
This bulletin briefly summarizes the proposals set out in the report.
Existence as a Legal Person
The report contains proposals tied to the existence of an insurance company and a trust or savings company as a legal person. The report proposes to increase the capital required to constitute such companies from C$3-million to C$5-million (Proposal #2). It also includes proposals to clarify the elements to be considered when authorizing the constitution (Proposal #3), amalgamation and conversion (Proposal #11) of such companies and to set out the amalgamation and conversion process and the related requirements (Proposals #12, #13 and #14). With respect to share purchase or share transfers transactions of a Quebec financial institution and the legal entity which control such institution, the report suggests clarifying the party that must apply for authorization (Proposals #8 and #9) and the type of transaction covered by the authorization process (Proposal #7).
The report further suggests providing certain specific presumptions in the text of the legislation to protect third parties after constitution (for example, that the information filed in the corporate registry by the financial institution is accurate – see Proposal #4), providing the steps to be taken after constitution (Proposal #5) and providing a continuation mechanism both to and from the Quebec jurisdiction (Proposal #10). The report proposes other changes including the removal of ownership restrictions applicable to non-residents of Quebec (Proposal #15) and a review of the winding-up process (Proposal #16).
The report includes certain proposals relating to the administration of financial institutions. Certain proposals list specific additional requirements applicable to certain books and records, including requirements regarding the retention period (Proposal #20), the location where such records should be kept (Proposal #17), their content (Proposal #18) and the persons who may and the conditions under which such persons may have access to records (Proposal #19). Other proposals target the board of directors and certain committees. The report proposes to change the current residency requirement of the board of directors requiring a majority of directors residing in Quebec to a majority residing in Canada (Proposal #21), to temper the rule limiting the proportion of employees and officers that may sit on the board of directors from one-third to one-half for subsidiaries wholly owned by the parent financial institution (Proposal #22), and to allow the same individuals to sit on the audit committees of a financial institution and its single shareholder that is also a financial institution (Proposal #23).
The report also lists various other proposed requirements that are considered with regards to the board of directors, including to:
- List in one single provision the obligations of the board of directors (Proposal #24)
- Specify the powers of the board that may be delegated (Proposal #25)
- Provide precise circumstances where each director would be deemed to have met his or her obligation to act with prudence and diligence (Proposal #26)
- Provide specifically that the directors and officers of the financial institution are required to ensure compliance with applicable laws (Proposal #29)
- Provide defences of directors and officers similar to those provisions found in the BCA (Proposal #27)
- Include provisions regarding meetings of shareholders, policy-holders and members that are more detailed (Proposals #30 and #31)
The report's final proposals in this section deal with the decision-making process of directors and shareholders. The report mentions that the legislation should include a mechanism where directors and shareholders would have standing to present an application before a court to resolve situations resulting from the directors' inability to hold a vote (Proposal #32). Another suggestion is made to include a provision that would allow directors to form a quorum to fill vacancies when necessary (Proposal #33).
The report outlines proposals meant to modify or add certain investment related provisions to provide financial institutions with greater flexibility without compromising the protection of the public. There are proposals to clarify the investments to be permitted by these institutions in specific types of legal persons. These would include specified investments in legal persons operating exclusively in the real estate sector (Proposal #34) and in a limited partnership whose limited and general partners are members of the same financial group (Proposal #36). Another proposal indicates that the legislation should state that the restrictions on a financial institution's capacity to pledge property do not affect the possibility to pledge property as collateral for securitization purposes and derivatives contracts (Proposal #39).
The report proposes to eliminate the quantitative ratios found in the Act respecting trust companies and savings companies in respect of permitted investments and to replace such ratios with a general obligation to adopt an investment policy and to comply with sound and prudent management practices. For insurance companies, the report proposes to eliminate the quantitative rule providing that, if an activity other than insurance generates more than 2% in gross revenue, the insurance company is required to constitute a subsidiary, and to replace it with a mechanism where the AMF would have the power to require the constitution of a subsidiary. Under this proposal, the AMF would also be granted the equivalent power to require the constitution of a subsidiary for trust and savings companies (Proposal #37).
Role and Powers of the AMF and Other Miscellaneous Proposals
The final substantive portion of the report explains the current role and powers of the AMF and presents a number of related proposals and suggestions which may affect Quebec and non-Quebec financial institutions. These include a general proposal to clarify the role and powers of the AMF and the circumstances under which these powers may be exercised (Proposal #40). It is also proposed that the AMF be granted certain specific powers including the power to require a compliance program from a financial institution whose solvency is at risk (Proposal #40), to adopt regulations (Proposal #42), and to authorize certain operations (Proposal #43). The report further suggests including freeze order provisions in the Act respecting insurance equivalent to those found in the Act respecting trust companies and savings companies (Proposal #40). Another proposal is to clearly specify that the AMF may exercise its powers against the parent company and its subsidiaries, including the power to demand and obtain information for purposes of assessing compliance with applicable statutes (Proposal #41).
Other proposals of the report cover the rights and obligations of the auditor of an insurance, trust or savings company. In this regard, the report suggests providing the auditor with the right to attend meetings of shareholders, members and participating policy-holders, and the directors with the right to require the auditor to attend such meetings (Proposals #44 and #45). It also suggests providing specifically the obligation of the directors to inform and provide the auditor with revised financial statements in certain circumstances (Proposal #45). The report recommends providing that the auditor be obligated to revise its report in certain circumstances and to inform the directors if his or her report contains a material error or inaccurate information (Proposal #45).
Co-authored by Ilia Kravtsov (Summer Law Student)