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Vol. 135, No. 44 — November 3, 2001
Financial Consumer Agency of Canada Designated Violations Regulations
Statutory Authority
Financial Consumer Agency of Canada Act
Sponsoring Department
Department of Finance
REGULATORY IMPACT ANALYSIS STATEMENT
Financial Consumer Agency of Canada Designated Violations Regulations
Index-linked Deposits Interest Disclosure Regulations
Name Use (Affiliates of Banks, or Bank Holding Companies, that Are Not Widely Held) Regulations
Notice of Branch Closure (Banks) Regulations
Notice of Branch Closure (Cooperative Credit Associations) Regulations
Notice of Branch Closure (Trust and Loan Companies) Regulations
Regulations Amending the Name Use by Non-financial Businesses (Excluded Entities) Regulations
Description
The Canadian financial services sector has been undergoing rapid change for the better part of a decade. In 1996, the federal government created the Task Force on the Future of the Canadian Financial Services Sector to review and advise on the nature of change taking place in the sector. In 1998, the Task Force issued a report which included numerous conclusions and recommendations. These findings were carefully reviewed by committees of both the House of Commons and the Senate. These committees largely endorsed the findings of the Task Force. Based on the work of the Task Force and the parliamentary committees, the federal government issued a policy paper in June 1999 entitled Reforming Canada's Financial Services Sector: A Framework for the Future. This document served as the policy foundation for Bill C-8, An Act to Establish the Financial Consumer Agency of Canada and to Amend Certain Acts in Relation to Financial Institutions (FCA Act). Bill C-8 received royal assent on June 14, 2001.
The FCA Act provides for significant amendments to the laws governing federal financial institutions. As an integrated package, the amendments brought about by the FCA Act promote efficiency and growth in the financial services sector, foster domestic competition, empower and protect consumers of financial services, and improve the regulatory environment for financial institutions.
A key characteristic of the FCA Act is the use of regulations to provide for a more flexible regulatory framework for the financial sector. This allows the Government to make modest policy adjustments to the framework in response to significant changes taking place in the global environment in which financial institutions operate. Many regulations are being proposed or modified to achieve this policy objective of creating a more flexible regulatory regime.
The remaining amendments bring existing Regulations in line with changes made to the financial institutions statutes under the FCA Act.
This is the third of several packages of Regulations that will be brought forward to complete the policy intent of the FCA Act. The first package of Regulations was approved for publication in Part II of the Canada Gazette on October 24, 2001, and the second package was pre-published in Part I of the Canada Gazette on September 8, 2001.
Of the seven Regulations included in this package, five relate to consumer provisions in the legislation. The other two Regulations pertain to name use for closely held banks.
This document discusses the regulatory impact of the following proposed new Regulations:
Financial Consumer Agency of Canada Designated Violations Regulations
The legislation allows the Governor in Council to make regulations designating the contravention of specific consumer provisions or of compliance agreements as violations under the Act. The Regulations designate as violations the contravention of any consumer provision or compliance agreement entered into under the Act.
Index-linked Deposits Interest Disclosure Regulations
The legislation allows the Governor in Council to issue regulations specifying information to be disclosed in respect of the risk to the interest payable on index-linked deposit products offered by federal deposit-taking institutions. The Regulations set out the key pieces of information that financial institutions will be required to disclose to consumers who purchase index-linked deposit products in person and over the telephone, the manner and timing for disclosure, and the type of information to be disclosed in advertising for such products.
Name Use (Affiliates of Banks, or Bank Holding Companies, that Are Not Widely Held) Regulations
Except to the extent permitted by the Bank Act and Regulations, it is an offence to use a name that includes the word "bank," "banker" or "banking" or that includes the name or logo of a bank or bank holding company. These Regulations permit certain affiliates of a closely held bank or bank holding company to use the name or logo of the bank or bank holding company in certain circumstances.
Notice of Branch Closure (Banks) Regulations
Notice of Branch Closure (Cooperative Credit Associations) Regulations
Notice of Branch Closure (Trust and Loan Companies) Regulations
The legislation allows regulations to be made regarding a branch closing or ceasing to open retail deposit accounts or to disburse cash to consumers. The Regulations require four months notice (six months if the branch is in a rural area and there is no retail deposit-taking branch within a travelling distance of 10 km from the branch). Circumstances in which member banks are exempted from the notice requirement or in which the Commissioner of the Financial Consumer Agency of Canada (FCAC) may exempt or modify the notice requirements are set out therein. When the member bank has not consulted the community well enough, an individual submits a request and the request is not frivolous, the Commissioner may require a meeting to exchange views.
Regulations Amending the Name Use by Non-financial Businesses (Excluded Entities) Regulations
Except to the extent permitted by the Bank Act and Regulations, it is an offence to use a name that includes the word "bank," "banker" or "banking." The legislation provides that no person commits an offence who uses the word "bank," "banker" or "banking" in relation to a business that is not financial in nature, unless the business is carried out by a prescribed entity. These Regulations set out a list of prescribed entities. They are being amended to include certain other entities whose name use rules will be covered elsewhere in the regulations and related legislation.
It is expected that another 30 Regulations will be brought forward for publication within the next few months. These remaining Regulations will complete the policy package envisaged by the June 1999 policy paper and the FCA Act.
Alternatives
The enclosed Regulations are required to bring the policy intent underlying the FCA Act into effect. They are required either to maintain the existing policy framework or to round out the implementation of the new policy framework, as outlined in the description. As such, no alternatives to the regulations were considered.
Benefits and Costs
The enclosed Regulations are integral to the overall policy objectives of the FCA Act. As such, their cost-benefit justification cannot be separated from the overall costs and benefits of the legislative package itself.
The FCA Act provides an improved regulatory structure that balances the competing interests of stakeholders. While individual legislative measures may impose some burden on a particular stakeholder group, there are overall net benefits for all stakeholders. For example:
— Consumers benefit from strengthened consumer protection measures, a more transparent complaints handling process, and the advantages brought about by increased competition.
— Financial institutions may face modestly increased regulation through enhanced regulatory rules and a strengthened consumer protection regime. However, they benefit from greater organizational flexibility and broader powers. The FCAC is expected to have an annual budget of about $7 million, the cost of which will be passed on to financial institutions in the form of allocated assessment.
— The Office of the Superintendent of Financial Institutions (OSFI) may face moderately increased regulatory challenges as a result of provisions intended to encourage new entrants, but the potential cost is offset by improved prudential regulatory powers and increased competition. The exact cost implications for OSFI of the legislative package are not easily calculable. The transfer of responsibility for administering the consumer provisions of the financial institutions legislation to the FCAC will reduce OSFI's costs. The relaxed new entrant requirements may increase OSFI's workload and costs, some of which will be borne by the new entrants. However, the streamlined approval process will reduce the cost of regulation and cost burden directly borne by financial institutions. In all, it is expected that OSFI's cost of regulation will not increase substantially.
Each of the Regulations included in this and subsequent packages is intended to implement a specific aspect of the overall policy structure introduced by the FCA Act. The Regulations may either be beneficial, cost/benefit neutral, or impose a burden on one or more relevant stakeholder groups. Since the weighing of costs and benefits has been done at the legislative level, the Regulations must be examined in light of their contribution to the balance of the overall policy framework that was approved in the FCA Act.
While most Regulations merely round out the policy intention of a provision in the legislation, in a few cases the scope of the burden borne by a stakeholder group is at least partially determined by the regulations. We note the following Regulations in this regard:
The Index-linked Deposits Interest Disclosure Regulations impose new written and verbal disclosure requirements on federal deposit-taking institutions that offer index-linked deposit products to their customers. These new disclosure requirements could result in some very small additional costs to the financial institutions if they do not currently divulge such information to their customers. However, the overall benefits achieved by the additional disclosure to consumers would outweigh the additional costs by reducing the general confusion about index-linked deposit products, which are often quite complex and difficult to understand.
The Notice of Branch Closure (Banks) Regulations impose a requirement on banks by specifying that a bank must provide four months or six months notice of branch closures to customers. Because most affected institutions are already respecting the policy intent as outlined in the June 1999 policy paper and in the legislation, this notice requirement is not expected to impose any additional costs on institutions.
Consultation
The FCA Act and its related Regulations are part of a policy development process dating back to 1996. At every stage of the process, stakeholders have been consulted. More recently, working drafts of the enclosed Regulations were shared with stakeholders and, wherever feasible, their comments have been reflected in revisions. For example, consumer groups requested that the upcoming Public Accountability Statements Regulations — to be included in a subsequent package — include a requirement for reference to an institution's priorities in the area of community development. This change has been made.
The following organizations were consulted:
— Action Réseau Consommateur (Fédération nationale des associations de consommateurs du Québec)
— Bourse de Montréal
— Canadian Bankers Association
— Canadian Community Reinvestment Coalition
— Canadian Life and Health Insurance Association Inc.
— Canadian Securities Administrators
— ComTel (TelPay)
— Consumers' Association of Canada
— CPA Stakeholders Advisory Council
— Credit Union Central of Canada
— Democracy Watch
— Fédération des caisses Desjardins
— Insurance Bureau of Canada
— Insurance Consumer's Group
— Interac Association
— Investment Dealers Association of Canada
— Investment Funds Institute of Canada
— Mutual Fund Dealers Association
— National Anti-Poverty Organization
— Option Consommateurs
— Public Interest Advocacy Centre
— Service d'aide aux consommateurs/Consumer Aid Services
Of the comments received to date on the various Regulations, the following is notable in respect of this package:
During the Government's consultations with industry on the Index-linked Deposits Interest Disclosure Regulations, several industry representatives indicated that the detailed written disclosure requirements set out in the Regulations would limit the ability of financial institutions to sell such products to consumers over the telephone. In response, the Government included provisions in the Regulations allowing for shorter disclosure when index-linked deposit products are sold over the telephone, with full written disclosure provided to the consumer as soon as possible after the telephone transaction.
Compliance and Enforcement
The Office of the Superintendent of Financial Institutions will be responsible for ensuring compliance with prudential aspects of the Regulations. The Financial Consumer Agency of Canada will be responsible for ensuring compliance with consumer-related Regulations.
Contact
Gerry Salembier, Director, Financial Institutions Division, Financial Sector Policy Branch, Department of Finance, L'Esplanade Laurier, 15th Floor, East Tower, 140 O'Connor Street, Ottawa, Ontario K1A 0G5, (613) 992-1631 (Telephone), (613) 943-1334 (Facsimile).
PROPOSED REGULATORY TEXT
Notice is hereby given that the Governor in Council proposes to make the following annexed Regulations:
— pursuant to paragraph 19(1)(a) of the Financial Consumer Agency of Canada Act (see footnote a), the Financial Consumer Agency of Canada Designated Violations Regulations;
— pursuant to sections 459.4 (see footnote b) and 576.2 (see footnote c) of the Bank Act (see footnote d), section 385.28 (see footnote e) of the Cooperative Credit Associations Act (see footnote f) and section 444.3 (see footnote g) of the Trust and Loan Companies Act (see footnote h), the Index-linked Deposits Interest Disclosure Regulations;
— pursuant to subsection 983(16) (see footnote i) of the Bank Act, the Name Use (Affiliates of Banks, or Bank Holding Companies, that Are Not Widely Held) Regulations;
— pursuant to subsection 459.2(5) (see footnote j) of the Bank Act, the Notice of Branch Closure (Banks) Regulations;
— pursuant to subsection 385.27(5) (see footnote k) of the Cooperative Credit Associations Act, the Notice of Branch Closure (Cooperative Credit Associations) Regulations;
— pursuant to subsection 444.1(5) (see footnote l) of the Trust and Loan Companies Act, the Notice of Branch Closure (Trust and Loan Companies) Regulations;
— pursuant to subsection 983(16) (see footnote m) of the Bank Act, the Regulations Amending the Name Use by Non-financial Businesses (Excluded Entities) Regulations.
Interested persons may make representations with respect to the proposed Regulations within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Mr. Gerry Salembier, Financial Sector Policy Branch, Department of Finance, L'Esplanade Laurier, 15th Floor, East Tower, 140 O'Connor Street, Ottawa, Ontario K1A 0G5.
Ottawa, October 25, 2001
RENNIE M. MARCOUX
Acting Assistant Clerk of the Privy Council
| Definitions | FINANCIAL CONSUMER AGENCY OF CANADA DESIGNATED VIOLATIONS REGULATIONS |
|---|---|
| INTERPRETATION | |
| Definition of Act | 1. In these Regulations, "Act" means the Financial Consumer Agency of Canada Act. |
| DESIGNATED VIOLATIONS | |
| Designation | 2. The following are designated as violations that may be proceeded with under sections 20 to 31 of the Act: (a) the contravention of any consumer provision; and (b) the non-compliance with any compliance agreement entered into under an Act listed in Schedule 1 to the Act. |
| COMING INTO FORCE | |
| Coming into force | 3. These Regulations come into force on the day on which they are registered. |
| [44-1-o] |
Index-linked Deposits Interest Disclosure Regulations
Statutory Authority
Bank Act, Cooperative Credit Associations Act and Trust and Loan Companies Act
Sponsoring Department
Department of Finance
REGULATORY IMPACT ANALYSIS STATEMENT
For the Regulatory Impact Analysis Statement, see the Financial Consumer Agency of Canada Designated Violations Regulations.
PROPOSED REGULATORY TEXT
For the Proposed Regulatory Text, see the Financial Consumer Agency of Canada Designated Violations Regulations.
| Definitions | INDEX-LINKED DEPOSITS INTEREST DISCLOSURE REGULATIONS |
|---|---|
| INTERPRETATION | |
| Definitions | 1. The following definitions apply in these Regulations. |
| "deposit index" « indice de dépôt » |
"deposit index", in relation to an index-linked deposit contract, means a market price, exchange rate, reference rate or other variable index or reference point, referred to in paragraph (a) of the definition "index-linked deposit contract", in reference to which the interest under the contract is to be determined in whole or in part. |
| "index-linked deposit contract" « contrat de dépôt indiciel » |
"index-linked deposit contract" means the contract, between a person and an institution, that contains the terms and conditions in respect of money that the person deposits with the institution if, (a) a payment that is to be made by the institution in respect of the money deposited is to be determined, in whole or in part, by reference to
|
| "institution" « institution » |
"institution" means (a) a bank, as defined in section 2 of the Bank Act; (b) an authorized foreign bank, as defined in section 2 of the Bank Act; (c) a retail association, as defined in section 2 of the Cooperative Credit Associations Act; or (d) a company, as defined in section 2 of the Trust and Loan Companies Act. |
| "interest" « intérêt » |
"interest", in relation to an index-linked deposit contract, includes any return payable under the contract by an institution in respect of the principal of the amount deposited under the contract. |
| DISCLOSURE | |
| Written disclosure | 2. (1) Subject to subsection (4), an institution that enters into an index-linked deposit contract with a person must, at or before the time of entering into the contract, give the person a written statement that clearly states, in plain language, (a) the way in which interest is to be determined under the contract; (b) a description of the deposit indexes under the contract; (c) a description of any limitations in respect of the interest payable under the contract, and the impact of those limitations on the rate of interest, including |
(e) that no interest is payable under the contract if there is no increase in a deposit index under the contract; (f) if the contract provides that minimum interest is payable, that no additional interest is payable under the contract if there is no increase in a deposit index under the contract; (g) any other circumstances that may affect the interest payable under the contract; (h) that the money deposited under the contract may not be withdrawn until the end of the term of the contract, or, if the contract provides any rights for earlier withdrawals, what those rights are; (i) that the principal of the amount deposited under the contract will be repaid on the maturity date under the contract; and (j) the maturity date under the contract. |
|
| Statement may be part of contract | (2) The written statement referred to in subsection (1) may be a part of the proposed index-linked deposit contract or it may be a separate document. |
| Disclosure by telephone | (3) If an institution enters into an index-linked deposit contract with a person by telephone and the institution has not already complied with subsection (1) in respect of the contract, the institution must, at the time of entering into the contract, clearly state to the person by telephone, in plain language, (a) the name of the deposit indexes under the contract; (b) that changes in the deposit indexes under the contract may affect the interest payable under the contract; (c) whether there are any limitations referred to in paragraph (1)(c) in respect of the interest payable under the contract, and if there are any, what those limitations are; (d) that no interest is payable under the contract if there is no increase in a deposit index under the contract; (e) if the contract provides that minimum interest is payable, that no additional interest is payable under the contract if there is no increase in a deposit index under the contract; (f) that the money deposited under the contract may not be withdrawn until the end of the term of the contract, or, if the contract provides any rights for earlier withdrawals, what those rights are; (g) that the principal of the amount deposited under the contract will be repaid on the maturity date under the contract; (h) the maturity date under the contract; (i) a description of any right under the contract to rescind the contract; (j) the date on which the calculation of interest will begin under the contract; and (k) that the institution will send to the customer by mail the written statement required by subsection (1). |
| Sending of notice | (4) If an institution enters into an index-linked deposit contract with a person by telephone and the institution has not already complied with subsection (1) in respect of the contract, the institution must, as soon as possible after entering into the contract, send the person the written statement described in subsection (1) and a written statement telling the person the date on which the calculation of interest will begin under the contract. |
| Advance disclosure of changes | 3. If the terms and conditions of an index-linked deposit contract allow the institution to make any changes in respect of the determination of interest payable to a person under the contract, the institution must disclose any of those changes that is a material change before making it — or, if that is not possible, as soon as possible after making the change — by describing it clearly, in plain language, in a written statement delivered to the person. |
| Disclosure in advertisements | 4. In each advertisement by an institution in respect of index-linked deposit contracts, the institution must disclose clearly, in plain language, (a) if the advertisement refers to features of the contracts or interest payable under the contracts,
|
| COMING INTO FORCE | |
| Coming into force | 5. These Regulations come into force four months after the day on which they are registered. |
| [44-1-o] |
Name Use (Affiliates of Banks, or Bank Holding Companies, that Are Not Widely Held) Regulations
Statutory Authority
Bank Act
Sponsoring Department
Department of Finance
REGULATORY IMPACT ANALYSIS STATEMENT
For the Regulatory Impact Analysis Statement, see the Financial Consumer Agency of Canada Designated Violations Regulations.
PROPOSED REGULATORY TEXT
For the Proposed Regulatory Text, see the Financial Consumer Agency of Canada Designated Violations Regulations.
| Definitions | NAME USE (AFFILIATES OF BANKS, OR BANK HOLDING COMPANIES, THAT ARE NOT WIDELY HELD) REGULATIONS |
|---|---|
| INTERPRETATION | |
| Definitions | 1. The following definitions apply in these Regulations. |
| "Act" « Loi » |
"Act" means the Bank Act. |
| "exemption order" « arrêté d'exemption » |
"exemption order" has the same meaning as in subsection 507(1) of the Act. |
| APPLICATION | |
| Application | 2. These Regulations do not apply to an entity that is (a) a bank or a bank holding company; (b) a subsidiary of a bank or of a bank holding company; (c) a Canadian entity that
(e) a foreign bank in respect of which an exemption order has not been made; or (f) an entity that is associated, within the meaning of section 507 of the Act, with a foreign bank that is not the subject of an exemption order. |
| ENTITIES AFFILIATED WITH A BANK | |
| Permitted use | 3. (1) Subject to section 7, no entity affiliated with a bank commits an offence under subsection 983(2) of the Act by reason only that the entity uses the name of the bank in the entity's corporate name or in a name under which the entity carries on business, so long as the entity does not use the word "bank", "banker" or "banking" in its corporate name or in a name under which it carries on business. |
| Permitted use | (2) Subject to section 7, no entity affiliated with a bank commits an offence under subsection 983(2) of the Act by reason only that the entity uses any identifying mark, logogram or insignia of the bank in carrying on the entity's business, so long as the entity does not use any identifying mark, logogram or insignia that includes the word "bank", "banker" or "banking". |
| Use in describing relationship with affiliate | 4. Subject to section 7, no entity affiliated with a bank commits an offence under subsection 983(2) of the Act by reason only that the entity uses the name of the bank in a description of the entity's corporate relationship to the bank. |
| ENTITIES AFFILIATED WITH A BANK HOLDING COMPANY |
|
| Permitted use | 5. (1) Subject to section 7, no entity affiliated with a bank holding company commits an offence under subsection 983(3) of the Act by reason only that the entity uses the name of the bank holding company in the entity's corporate name or in a name under which the entity carries on business, so long as the entity does not use the word "bank", "banker" or "banking" in its corporate name or in a name under which it carries on business. |
| Permitted use | (2) Subject to section 7, no entity affiliated with a bank holding company commits an offence under subsection 983(3) of the Act by reason only that the entity uses any identifying mark, logogram or insignia of the bank holding company in carrying on the entity's business, so long as the entity does not use any identifying mark, logogram or insignia that includes the word "bank", "banker" or "banking". |
| Use in describing relationship with affiliate | 6. Subject to section 7, no entity affiliated with a bank holding company commits an offence under subsection 983(3) of the Act by reason only that the entity uses the name of the bank holding company in a description of the entity's corporate relationship to the bank holding company. |
| CONDITIONS | |
| Conditions | 7. (1) Sections 3 and 4 apply to an entity that is affiliated with a bank, and sections 5 and 6 apply to an entity that is affiliated with a bank holding company, only if the entity complies with the following conditions: (a) the entity does not, in Canada, engage in the business of accepting deposit liabilities; (b) the entity does not, in Canada, represent to the public that any instrument issued by it is a deposit or that any liability incurred by it is a deposit; and (c) if the entity carries on as part of its business the provision of financial services and borrows money in Canada from the public through the issue of instruments in denominations of less than $150,000 or by borrowing from a person in an amount of less than $150,000, the entity discloses that
|
| Means of disclosure | (2) The disclosure referred to in paragraph (1)(c) must be in a prospectus, information circular or other offering document related to the borrowing or in a similar document related to the borrowing or, if there is no such document, in a statement delivered to the lender. |
| Application | (3) The conditions set out in subsection (1) do not apply to an entity that is (a) a trust or loan corporation incorporated under a federal or provincial law; (b) an association to which the Cooperative Credit Associations Act applies; or (c) a cooperative credit society incorporated or formed, and regulated, by or under a provincial law. |
| Application | (4) The conditions set out in paragraph (1)(c) do not apply to an entity that is (a) an insurance company or fraternal benefit society incorporated or formed by or under a federal or provincial law; (b) an insurance holding company; (c) an entity that is controlled by an insurance holding company or that an insurance holding company has a substantial investment in; or (d) an entity that is incorporated or formed by or under a federal or provincial law and that is primarily engaged in dealing in securities, including portfolio management and investment counselling. |
| Subsequent use by bank or bank holding company | (5) The conditions set out in subsection (1) do not apply in respect of the use by an entity of a name that, before being used by the bank or bank holding company, as the case may be, was already used by the entity, or by an entity affiliated with it, in the corporate name of the entity or affiliate or in a name under which the entity or affiliate carries on business. |
| Subsequent use by bank or bank holding company | (6) The conditions set out in subsection (1) do not apply in respect of the use by an entity of an identifying mark, logogram or insignia that, before being used by the bank or bank holding company, as the case may be, was already used by the entity, or by an entity affiliated with it, in carrying on the business of the entity or affiliate. |
| COMING INTO FORCE | |
| Coming into force | 8. These Regulations come into force on the day on which they are registered. |
| [44-1-o] |
S.C. 2001, c. 9
S.C. 2001, c. 9, s. 125
S.C. 2001, c. 9, s. 159
S.C. 1991, c. 46
S.C. 2001, c.9, s. 313
S.C. 1991, c. 48
S.C. 2001, c. 9, s. 548
S.C. 1991, c. 45
S.C. 2001, c. 9, s. 183
S.C. 2001, c. 9, s. 125
S.C. 2001, c. 9, s. 313
S.C. 2001, c. 9, s. 548
S.C. 2001, c. 9, s. 183
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