On October 18, 2012, the Honourable Jim Flaherty, Minister of Finance, introduced in Parliament the Jobs and Growth Act, 2012 (Bill C-45), the second omnibus legislation in 2012 implementing the provisions of the federal Budget tabled on March 29, 2012. Earlier in 2012, the Jobs, Growth and Long-term Prosperity Act (the JGLP Act) implemented certain other measures of the federal Budget. Both Acts introduce a number of amendments to the federal statutes affecting Canada’s financial institutions.

There has been a great deal of change to the legislation and guidance directly applicable to financial institutions in 2012, which we have summarized in this bulletin.

Amendments to Bank Act, Trust and Loan Companies Act and Insurance Companies Act

Bill C-45 introduces consequential and technical amendments to the Bank Act, the Trust and Loan Companies Act, and the Insurance Companies Act, co-ordinating changes already legislated through the JGLP Act. These amendments allow certain publicsector investment pools that satisfy specified criteria, including pursuing commercial objectives, to directly invest in a federally regulated financial institution (FRFI), subject to the approval of the Minister of Finance. As with current ministerial approvals, investments must be in the best interests of the financial sector and are subject to a national security test.

These changes follow amendments legislated under the JGLP Act prohibiting the issuance of life annuity-like deposit products, as well as covered bonds except within the framework established under the National Housing Act (the NHA). The NHA establishes a new registry for covered bond programs and for institutions that issue covered bonds. It also provides for the protection of covered bond contracts and covered bond collateral in the event of an issuer’s bankruptcy or insolvency.

The JGLP Act also introduced a new preamble to the Bank Act, which provides that the Bank Act requirements serve as “clear, comprehensive, exclusive, national standards applicable to banking products and banking services offered by banks”.

Amendments to Payment Clearing and Settlement Act (PCSA)

Bill C-45 introduces amendments to the PCSA to implement Canada’s G-20 commitment to support central clearing of standardized over-the-counter derivative transactions. The PCSA provides for the supervision and regulation of systemically important domestic and international clearing and settlement systems that are designated by the Governor of the Bank of Canada. The proposed amendments to the PCSA are intended to ensure that derivatives clearing activities are treated in a similar fashion as the clearing of cash securities under the PCSA. The proposed amendments extend the legal protections available under the PCSA to derivatives clearing central counterparties operating in the Canadian market, their Canadian clearing members, and to clients of Canadian clearing members. Bill C-45 introduces the following amendments to the PCSA:

  • the definition of a “clearing and settlement system” will be amended to eliminate, for derivatives systems, the requirement that payment obligations that arise from clearing within the system be ultimately settled through adjustments to the account or accounts of one or more of the participants at the Bank of Canada;
  • the definition of a “clearing house” will be amended to include a securities and derivatives clearing house (as defined in the PCSA);
  • the definition of “settlement rules” will be amended to include the rules on the basis of which “delivery obligations or other transfers of property or interests in, or in Quebec rights to, property” are made, calculated, netted or settled;
  • the definition of a “financial collateral” will be amended to include an assignment of a right to payment or delivery against a clearing house, as well as other collateral that may be prescribed by regulations;
  • the definition of a “netting amendment” will be broadened to include agreements between a participant of a clearing and settlement system and a customer to which such participant provides clearing services; and
  • the protections available under paragraph 8(1)(c) of the PCSA for the irreversibility of payments made in accordance with the settlement rules of a designated clearing and settlement system will be extended to apply to property, or to interest or right in property, that is delivered or transferred in accordance with such rules.

Amendments to Canada Deposit Insurance Corporation Act (CDIC Act)

Bill C-45 introduces amendments to the CDIC Act, together with consequential amendments to the PCSA, that enhance CDIC’s ability to take on and preserve critical functions of a failed CDIC member through a bridge institution. The amendments will provide for a limited automatic stay on the ability of certain counterparties of a failed CDIC member institution to terminate certain eligible financial contracts, such as derivatives and repos, for one business day following the incorporation of a bridge institution.  

Amendments to Canada Labour Code (CLC)

Bill C-45 also amends the CLC to simplify the calculation of holiday pay and to set out the timelines for making certain complaints under Part III of the CLC, as well as to simplify the circumstances in which an inspector may suspend or reject such complaints. The amendments will also set limits on the period that may be covered by payment orders and will provide for a review mechanism for payment orders and notices of unfounded complaints. These amendments follow changes to the CLC introduced by the JGLP Act that require the parties to a collective agreement to file a copy of such agreement with the Minister of Labour, subject to the regulations, as a condition for the agreement to come into force. The JGLP Act also required employers that provide benefits to their employees under long-term disability plans to insure those plans, subject to certain exceptions.

Amendments to Canada Mortgage and Housing Corporation Act (CMHC Act)

Bill C-45 also amends the CMHC Act to remove the age limit for persons from outside the federal public administration being appointed or continuing as a director or president of the CMHC. Earlier in 2012, the JGLP Act amended the CMHC Act, as well as the NHA, to enhance the governance and oversight framework of the CMHC.

Other Regulatory Developments

Canada’s regulatory landscape for financial institutions has been subject to a number of other changes in 2012.

On October 24, 2012, the federal government introduced proposed Prepaid Payment Products Regulations, which set out a new consumer protection framework at the federal level for prepaid payment products issued by FRFIs. (See our Blakes Bulletin: Proposed Federal Prepaid Card Regulations.)

On October 13, 2012, amendments were introduced to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations with the stated purpose of improving Canada’s compliance with the Financial Action Task Force’s Recommendations dealing with customer due diligence. The amendments are expected to come into force one year after final publication. (See our Blakes Bulletin: Proposed Amendments to Canadian Anti-Money Laundering Legislation.)

On September 18, 2012, the federal government released a proposed Addendum to the Code of Conduct for Canadian Credit and Debit Card Industry (CDC Code) that will extend the application of the CDC Code to mobile payments. (See our Blakes Bulletin: Mobile Payments Subject to CDC Code of Conduct for Canadian Credit and Debit Card Industry.)

On August 7, 2012, the Office of the Superintendent of Financial Institutions (OSFI) released a draft Guideline on Corporate Governance for FRFIs, which will update the Guideline that was originally published in 2003. (See our Blakes Bulletin: OSFI Releases Draft Amended Guideline on Corporate Governance.)

On August 1, 2012, the Negative Option Billing Regulations came into force. The Regulations distinguish between a new primary financial and optional product or service, and require FRFIs, among other things, to obtain the express consent of individuals before providing new products and services to an individual for non-business purposes. (See our Blakes Bulletin: Update on Federal Consumer Protection Measures for more detailed discussion of these new Regulations.)

On August 1, 2012, the Canadian Bankers Association released its Commitment on Modification or Replacement of Existing Products or Services (Commitment), which outlines the procedures for banks to follow when they modify or replace existing personal products or services for natural persons who subscribe to products or services for non-business purposes. The Commitment excludes optional products and services, as defined by the Negative Option Billing Regulations.

The Access to Funds Regulations, which also came into force on August 1, 2012, repealed the Cheque Holding Policy Disclosure Regulations. The new Regulations reduce the cheque holding periods and prescribe the amount of funds that must be immediately available in relation to paper-based cheques. The Regulations extend these consumer protection provisions to “eligible enterprises”.

Credit Business Practices Regulations were amended to require express consent from a credit card holder before credit card cheques may be distributed to the credit card holder. The Regulations will become effective in June 2013.

On July 6, 2012, the Minister of Finance introduced the draft Approved External Complaints Bodies (Banks and Authorized Foreign Banks) Regulations in respect of the resolution of complaints by bank customers. (See our Blakes Bulletin: New Oversight for Banking Complaints.) At the same time, the Financial Consumer Agency of Canada released the proposed Commissioner’s Guidance on Internal Dispute Resolution, which establishes the minimum standards required for FRFIs’ internal complaints procedures.

On June 21, 2012, OSFI released the final version of Guideline B-20 – Residential Mortgage Underwriting Practices and Procedures, which applies to all FRFIs engaged in residential mortgage underwriting and/or the acquisition of residential mortgage loan assets in Canada. (See our Blakes Bulletin: OSFI Releases Final Guideline for Consumer Mortgage Business.)

In March 2012, the Financial System Review Act was enacted after a statutorily mandated five-year review of the legislation governing banks and federally regulated insurers, trust and loan companies and credit union centrals. This legislation introduced a variety of technical amendments, as well as several more substantive measures. (See our Blakes Bulletin: Staying the Course: Little Change to Federal Financial Institutions Legislation.)

In the same month, the Task Force for the Payments System Review published its final report entitled Moving Canada into the Digital Age. (See our Blakes Bulletin: Final Report of Task Force for the Payments System Review Arrives.)