On September 16, 2016, the Department of Finance Canada released a consultation document seeking views on possible improvements to Canada's deposit insurance framework. As announced in Budget 2014, the Government is conducting a comprehensive review of Canada's deposit insurance framework. The consultation is aimed at ensuring that Canada's deposit insurance framework continues to serve Canadians and to help determine whether certain products covered by the deposit insurance framework reflect the evolving marketplace in the Canadian financial sector.
The review is guided by three broad policy objectives: protecting depositors; supporting financial stability; and promoting efficient and competitive financial services. Comments are to be submitted to the Department of Finance by November 30, 2016.
The consultation document states that analysis undertaken for the deposit insurance review suggests that deposit insurance coverage is largely functioning well and meeting its primary objectives. As a result, the consultation document states that major changes are not required, and that the current $100,000 limit remains appropriate. However, some areas of potential improvement have been identified.
The areas for potential improvement identified in the consultation document are:
Streamlining Deposit Categories
Mortgage Tax Deposits - Given the declining use of mortgage tax accounts, the Government is considering removing mortgage tax accounts as a separate insured category of deposit. Funds held in mortgage tax accounts could still receive coverage under another coverage category.
Registered Products - Currently, eligible deposits in certain registered products (Registered Retirement Savings Plans, Registered Retirement Income Funds, and Tax-Free Savings Accounts) receive separate deposit insurance coverage under the framework, while eligible deposits held in other types of registered plans (Registered Education Savings Plans and Registered Disability Savings Plans) are covered under the trusts or individual coverage category. The Government is considering adding Registered Education Savings Plans and Registered Disability Savings Plans as deposit categories. As an alternative, all registered products could be amalgamated into one deposit category with a higher insurance limit.
Updating the Scope of Eligible Deposits
Travellers' Cheques - While travellers' cheques issued in Canadian dollars by CDIC member institutions are eligible for deposit insurance, CDIC member institutions no longer issue traveller's cheques (instead they offer third party traveller's cheques, which are not eligible for coverage). As such, the Government is considering removing travellers' cheques as an eligible deposit.
Products with Terms Greater than Five Years - Currently, a term deposit is only eligible for CDIC insurance if it has an original term to maturity of five years or less. In order to better reflect today's marketplace, the Government is considering the removal of the current five year limit.
Foreign Currency Deposits - Deposits held in currencies other than the Canadian dollar are ineligible for coverage under the current deposit insurance framework. The Government is considering the addition of foreign currency as an eligible deposit.
Temporary High Balances - The intent of temporary high balance deposit coverage would be to protect depositors from a bank failure occurring as they transition through a major life event (such as receiving an inheritance, an insurance payout, a divorce settlement or the proceeds from the sale of private property).
Addressing the Complexity of Trusts
The Government is seeking views on how to address the complexity of trusts, in particular, how to improve the disclosure of beneficiary information and address brokered deposits.
Beneficiary information is the basis for the determination of separate deposit insurance coverage of trust deposits. Insufficient or incorrect beneficiary information could result in a reduction in coverage available to beneficiaries. Given the importance of beneficiary information, the Government is seeking views on how to improve the quality of beneficiary information available to CDIC.
A particular issue that arises with trusts is brokered deposits. Deposit brokers can deposit funds either as an agent (in which case the account is in their client's name) or in their own name in a trust for their client. Brokered deposits receive coverage differently depending on the approach the broker chooses. The Government is seeking views on how to ensure beneficiaries of brokered trustee deposits retain their coverage, through improved disclosure of beneficiary information.