On November 20, 2019, the Legislative Assembly of BC approved in Third Reading the Government’s Bill 37 the Financial Institutions Amendment Act, 2019 (BC) (Bill 37), introduced by the Minister of Finance on October 21, 2019, and amended in Committee in part on November 20, 2019. The vast majority of the provisions will come into force at a future date by regulation. Bill 37 in conjunction with the Financial Services Authority Act, 2019 (BC) (the FSA Act) will introduce significant changes to British Columbia’s financial services regulatory structure.
Among other things, Bill 37 will amend the Financial Institutions Act (BC) (the FIA). This posting discusses some of those amendments relevant to the insurance sector.
New BC Financial Services Authority
The first significant change took effect on November 1, 2019, under the FSA Act, when the BC Financial Services Authority (BCFSA) became the successor to the Financial Institutions Commission of BC (FICOM). The BCFSA will take on increased independence as a Crown agency accountable to the BC Legislature through the Minister of Finance. The BCFSA is intended to become a self-funded Crown agency receiving fees from its stakeholders but not contributing those funds to BC’s general provincial revenues.
Consequence to the Sector
The BCFSA will be granted enhanced regulatory roles under the FIA, as the provisions of Bill 37 are proclaimed in force. Some of these amendments will establish new regulatory requirements for the insurance industry’s operations in BC. Some of these requirements will not be clarified until the details are available in the applicable rules and regulations. The process of making rules will involve public consultation prior to their effective dates. Amendments not dependent on rules for implementation will require no further consultation and can be brought into force by regulation.
Bill 37 is the culmination of the lengthy review of the FIA and related statutes. That review included two rounds of stakeholder submissions pursuant to a public comment process. Our prior posting on the policy review is available online at British Columbia's Review of Financial Institutions Legislation: Impact on the Insurance Sector – May 10, 2018.
Scope of this Bill in the Insurance Sector
Bill 37 amends several statutes in the financial sector. However, this posting update focuses on only the portions of Bill 37 that most directly affect the insurance industry. (The posting does not consider Bill 37 in the context of credit unions, trust companies or other institutions.) Bill 37 does not amend the Insurance Act; it amends the FIA, a key part of the insurance regulatory regime in BC which, in turn, at times, may have consequential effect on the broader aspects of insurance regulation in BC. For example, Bill 37 will permit regulations under the FIA to limit the application of certain sections and a statutory condition under the Insurance Act in certain circumstances.
When in force section 43 of Bill 37 will expand regulatory powers to provide the BCFSA with rule-making authority that would allow it to create legally-binding obligations, subject to mandatory public consultation and the minister’s consent. By contrast, to date, FICOM’s (and BCFSA’s current) authority has been limited primarily to the issuance of “guidelines” interpreting current regulatory requirements.
The BCFSA’s rules would be given status similar that afforded the rules issued by other rule-making authorities such as the BC Securities Commission (accomplished by section 131 of Bill 37 adding the BCFSA’s rules to the Schedule to the Regulations Act). Bill 37 does not clarify what processes will be involved, or what opportunities for stakeholder input will be available, in the mandatory public consultation or the ministerial approval of issuance, amendment or repeal of any rule.
The BCFSA’s rule-making authority will cover the majority of regulatory requirements, including capital requirements, institutions’ governance, market conduct, online insurance offering and sales, oversight by restricted insurance agent licenses of their employees and agents, operations and risk oversight, and funding requirements for reciprocal exchanges. Bill 37 expressly permits the BCFSA to adopt guidelines or rules of other regulatory authorities, without needing to adopt any guideline or rule in its entirety, enabling the BCFSA to establish distinct standards for BC. The BCFSA would also have the authority to exempt any persons or entities from any of its rules. The BCFSA’s rules cannot amend regulations made by the Lieutenant Governor in Council and, in the event of any conflict, the regulation made by the Lieutenant Governor in Council prevails over the BCFSA’s rule.
Bill 37 provides that the term “prescribed” will mean prescribed by regulation made by the Lieutenant Governor in Council, even though the term has been defined more broadly in the Interpretation Act (BC).
Bill 37 (section 79(g)(4)) enables the Lieutenant Governor in Council (but not the BCFSA) to make regulations under the FIA that will have some bearing on the effect of provisions in the Insurance Act. Those regulations will be enabled under the following paragraphs of section 289 of the FIA:
- (e.1) to allow regulations under the FIA to prohibit denial of insurance claims for innocent misrepresentation or omission;
- (e.2) to establish grounds for voiding a contract entered without an agent and to prohibit such voiding in absence of those grounds; and
- (o.21) to allow the Lieutenant Governor in Council to prescribe under the FIA that certain circumstances would limit or disallow application of certain sections of the Insurance Act (BC) or the Statutory Condition 1.
Liquidation, Dissolution, Receivership
On application by the BCFSA to the Supreme Court of BC, the Supreme Court will be authorized to liquidate and dissolve an insurance company that has not, in the previous year, undertaken certain activities falling within the statutory definition of “insurance business” (except as may be necessary to windup the business). Such situations would arise where the company had not, in the previous year, issued or delivered a contract of insurance or a receipt for any contract of insurance, granted an annuity on a life or lives, received or collected any premium for a contract of insurance, or adjusted any loss. The Court may also liquidate and dissolve the company if its business authorization has been revoked (voluntarily or by order), if the company is noncompliant and it is in the public interest to liquidate and dissolve it, or the Court considers it otherwise just and equitable (s. 6 of Bill 37).
As well, Bill 37 will authorize the BCFSA to appoint its superintendent or another person as a provisional liquidator of the insurance company if the business authorization has been revoked voluntarily or by order. The provisional liquidator must apply for liquidation and dissolution of the company under section 324 of the Business Corporations Act (BC). The provisional liquidator would have the powers to carry on the operations, to preserve and add and realize the property, to receive revenues, to exercise powers of the company and its directors and officers and to exclude them from the business. Bill 37 provides that the BCFSA set the remuneration of the liquidator (s 7 of Bill 37).
Bill 37 will expand the grounds on which the BCFSA may apply to the Supreme Court for appointment of a receiver or receiver manager of assets of an insurance company including if the company has failed to comply with a section 244 order, is conducting its affairs in a manner reasonably expected to be harmful to insureds’ interests and the appointment would be in the public interest (s. 73 of Bill 37).
Marketing of Financial Products, Market conduct, Online sales
Anyone conducting insurance business online will have to meet the requirements of the new regime regulating the online sales of insurance to be governed by both rules made by the BCFSA (s 12 of Bill 37) and by regulations made by the Lieutenant Governor in Council. Bill 37 will enable the Lieutenant Governor in Council to make regulations prescribing requirements for use of “electronic agents” in the issuance, delivery or undertaking of insurance contracts, including documents, disclosures, standardized wordings, rights of rescissions, data collection and data use and to make regulations prohibiting post-claim underwriting for online sales (s. 79 of Bill 37).
Deceptive ads and applications
Bill 37 will authorize the BCFSA to prohibit use of any documents, advertisements and applications, if in the opinion of the BCFSA they are unfair, misleading or deceptive (s. 13 of Bill 37).
Code of market conduct
Insurance companies (but not reinsurers) will be required to adopt, and comply with, a code of market conduct established and amended from time to time by the BCFSA. Bill 37 does not restrict the BCFSA to a particular model code. However, the legislative debates (transcribed in draft form) indicated an expectation that the BCFSA would adopt the same code as adopted nationally from time to time. Reinsurers will not be required to adopt or comply with the code (s. 14 of Bill 37).
Restricted Insurance Agent Licenses
Bill 37 provides the framework for BC to establish a regulatory regime for restricted insurance agent licenses. The Insurance Council of BC will be authorized to issue restricted insurance agent licenses to certain persons, namely to a prescribed class of persons or to persons carrying on a prescribed class of insurance business (s. 31 of Bill 37). The license will authorize that licensee through its employees and agents to act as an insurance agent in respect of the prescribed classes of insurance specified in that license. To give effect to this new license, Bill 37 authorizes the Insurance Council of BC to make rules establishing this regime including its education requirements, specific mandatory disclosures and standardized wordings and restricting post-claim underwriting by those licensees, their employees and their agents (s. 60 of Bill 37).
Corporate information, Public access to information
Bill 37 will require an institution to file reports “outlining its financial affairs, market conduct and risk management practices and corporate governance” and to post online its financial statements, auditor’s report and other prescribed documents, as well as make paper copies available at branches and offices (s 18, 19 of Bill 37).
Collection and publication of financial institution information
The BCFSA will have expanded authority to collect and publish certain prescribed financial, risk-related and complaint information (s. 45 of Bill 37).
Disclosure and self-assessments
Bill 37 will prohibit disclosure of information and records created, compiled or received under the FIA, permit disclosure in certain circumstances and assert some privilege and protection for supervisory information and self-evaluative compliance audits (s. 51 of Bill 37). The Ministry’s policy paper called for protection of self-assessments under B.C.’s Freedom of Information and Protection of Privacy Act (“FIPPA”) legislation. Bill 37 in first reading included language in section 51 intended to ensure that self-assessments prepared under the FIA by BC insurers and other financial institutions would be protected from Freedom of Information requests under FIPPA. After first reading, an amendment to remove that protection from the Bill was raised by the Minister and approved by Committee, thereby removing the proposed protection under FIPPA.
Market conduct database
Bill 37 will allow the BCFSA to enter into agreements with other regulatory authorities in Canada and with the administrator of a national database of market conduct providing for exchange of information about market conduct practices of insurers (s. 52, 53 of Bill 37).
Investigation, offences, penalties
Bill 37 will grant the BCFSA augmented powers of examination, inspection and investigation, including powers for the superintendent, special examiners and investigators. As well there will be additional offences for interfering with investigations. Maximum fines for partnerships will equal those for corporations. The maximum fines will increase from $100,000 to $500,000 for a first conviction and from $200,000 to $1,000,000 for a subsequent conviction.
Amending provisions related to societies, reciprocals and mutuals, Societies
The term “insurance company” will include those societies, and exclude those extra-provincial non-share corporations, which are deemed to have a business authorization under Division 5 of Part 6 of the FIA (s. 1 of Bill 370. Bill 37 will also amend some provisions relating to corporate matters, business authorizations and actuarial certificates for certain societies (s. 36, 38, 39 of Bill 37).
Bill 37 will authorize the BCFSA to specify an expiry date for a reciprocal exchange permit and will apply certain sections (in particular those related to special examinations and investigations) to a reciprocal exchange as if it were an insurance company (s. 32, 33 of Bill 37).
Currently some but not all subsections of the current section 61 of the FIA, relating to business authorizations, apply to mutual fire insurance companies. When sections 8 and 34 of Bill 37 come into force, additional provisions under s. 61 of the FIA relating to business authorizations, and how to amend them, will apply to a mutual fire insurance company as if it were an insurance company.
Next developments will include regulations and rules applicable to the insurance industry (and credit unions and trust companies) but also implementation of plans to broaden the role of BCFSA into the real estate sector.