Vol. 145, No. 7 — February 12, 2011

ARCHIVED — Regulations Amending the Insurance Business (Banks and Bank Holding Companies) Regulations

Statutory authority

Bank Act

Sponsoring department

Department of Finance

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the regulations.)

Executive summary

Issue

Current government policy limits the types of insurance that deposit-taking financial institutions are authorized to sell or promote, to those that are considered ancillary to the core business of these institutions. The legislative restrictions on the insurance business activities of banks and authorized foreign banks are contained in the Bank Act and related regulations. Similar restrictions exist on the insurance business activities of trust and loan companies under the Trust and Loan Companies Act and those of associations formed under the Cooperative Credit Associations Act.

Government policy is also reflected in the current Insurance Business Regulations. These regulations delineate the relationship that deposit-taking financial institutions maintain with entities or individuals that engage in or carry on the business of insurance, and the relationships that deposit-taking financial institutions maintain with insurance agents and insurance brokers. These regulations also define the insurance-related activities that deposit-taking financial institutions may engage in, the manner in which it may provide, promote, and solicit business in connection with these types of activities, and the use and distribution of protected types of information. Permitted and prohibited activities vary according to whether they take place inside or outside a bank branch, or whether they relate to what the regulations define as “authorized insurance” (these are generally related to credit, mortgage, and travel insurance; for example, deposit-taking financial institutions can offer mortgages and can therefore offer mortgage insurance).

In recent years, a number of deposit-taking financial institutions have undertaken, through their web pages, activities relating to the sale and promotion of insurance products; under the Insurance Business Regulations, some of these activities would be prohibited in branches. Such activities include the promotion of insurance products that are not considered to be ancillary to the core business of deposit-taking financial institutions on their web pages.

Objectives

The proposed Regulations Amending the Insurance Business Regulations (the regulations) are intended to extend existing policy to the web pages of deposit-taking financial institutions. These regulations would help to ensure a greater consistency between the promotion of insurance products permitted on the web pages of deposit-taking financial institutions and the promotion that is permitted in their branches.

Description

The proposed regulations would ensure that the promotion of insurance products by deposit-taking financial institutions is related to the core business of these institutions. The regulations would prevent deposit-taking financial institutions from using their web pages to promote non-authorized insurance products, which is not permitted in their branches. These regulations would also prohibit the promotion of, or web links to, insurance other than authorized insurance from all web pages of deposit-taking financial institutions. These regulations were made necessary by evolving use of technology by banks.

In addition, technical amendments are proposed to modernize the regulations as follows:

• New provisions of Part XIII of the Insurance Companies Act came into force on January 1, 2010. These new provisions clarified that the Canadian regulatory framework applicable to insurance activities is based on the location of the insurance business activities. A consequential amendment is therefore proposed to remove a reference to “risks outside Canada;”
• The current Insurance Business Regulations permit certain promotion activities directed to persons who receive statements of account by mail. On the request of a consumer, deposit-taking financial institutions also issue statements of account by electronic means. Amendments are proposed to modernize the current reference to receiving statements of account by removing the reference to mail; and
• The Standing Joint Committee for the Scrutiny of Regulations has suggested corrections to the French versions of the Insurance Business Regulations to ensure consistency with the English versions and better reflect the terms used in legislation. These corrections apply to the existing regulations regarding bank business being carried out adjacent to the premises of an insurance company, agent, or broker. Technical amendments are proposed accordingly.

The amendments described above would be made to the following regulations:

• Insurance Business (Banks and Bank Holding Companies) Regulations;
• Insurance Business (Authorized Foreign Banks) Regulations;
• Insurance Business (Cooperative Credit Associations) Regulations; and
• Insurance Business (Trust and Loan Companies) Regulations.

Regulatory and non-regulatory options considered

The proposed regulations are required to extend government policy to the web pages of deposit-taking financial institutions in a similar fashion as the regulatory framework that applies to insurance activities in branches.

Benefits and costs

Deposit-taking financial institutions currently use web pages to undertake insurance business activities. To comply with the proposed regulations, some deposit-taking financial institutions would have to modify practices related to the business of insurance on web pages and modify their web pages accordingly. The costs of these modifications are expected to be modest for the institutions affected.

The proposed application of the key elements of the existing regulatory framework to both branches and web pages would provide consumers with greater clarity. Consumers would continue to have access to a broad choice of insurance products. The proposed regulations would support a level playing field for the promotion of insurance products for all insurance providers.

Rationale

Current government policy limits the types of insurance that deposit-taking financial institutions are authorized to sell or promote, to those that are considered ancillary to the core business of these institutions.

In recent years, a number of deposit-taking financial institutions have undertaken, through their web pages, activities relating to the sale and promotion of insurance products; some of these activities would not be authorized to be conducted in their physical branches.

The wording of the existing Insurance Business Regulations does not address web promotion. The proposed regulations were made necessary by the evolving use of technology by deposit-taking financial institutions. The proposed regulations would extend the application of this regulatory framework to the web pages of deposit-taking financial institutions.

Compliance by deposit-taking financial institutions would be achieved at a modest transition cost since they would have the opportunity to adopt for their web pages business practices that are similar to those used in branches thereby providing greater consistency between the physical and virtual financial environments.

Consultation

In October 2009, the Minister of Finance wrote to the Canadian Bankers Association, the Trust Companies Association of Canada, and the Insurance Brokers Association of Canada, informing them of his intention to develop regulations to include bank web pages in the regulatory framework prohibiting promotion of certain types of insurance services.

These letters were followed by an email from the Department of Finance soliciting comments from these and other key stakeholders regarding the development of a proposed regulatory regime applying to the promotion of insurance on the web pages of deposit-taking financial institutions.

Comments resulting from this email were received from insurance brokers, insurance companies, financial advisors, and banks. The Department also consulted OSFI as the entity in charge of the enforcement of the proposed regulations.

In their submissions, insurance brokers and some insurance companies supported a proposal to extend to the web pages of deposit-taking financial institutions the regulatory framework that applies to insurance activities in branches. Deposit-taking financial institutions expressed the view that web pages should be treated differently than physical branches and subject to fewer restrictions with regard to the business of insurance.

The comments received from these stakeholders were taken into consideration when developing a proposed regime for the promotion of insurance on bank web pages in order to strike a balance between these views. This proposed regime was announced by the Minister of Finance in May 2010 and is reflected in these proposed regulations.

Implementation, enforcement and service standards

The proposed amendments would not result in significant changes to OSFI’s systems or procedures and OSFI is taking the necessary measures to ensure that it would be prepared to enforce the amendments. It is not anticipated that any additional staff would be required as the existing supervisory framework would be sufficient to monitor compliance with the proposed regulations. In the event of non-compliance, the Superintendent of Financial Institutions has the authority to issue a direction of compliance to companies to ensure that the requirements set out in the proposed regulations are being met.

Contact

Jane Pearse
Director
Financial Institutions Division
L’Esplanade Laurier, 15th Floor
140 O’Connor Street
Ottawa, Ontario
K1A 0G5
Telephone: 613-992-1631
Fax: 613-943-1334
Email: finlegis@fin.gc.ca

PROPOSED REGULATORY TEXT

Notice is hereby given that the Governor in Council, pursuant to section 416 (see footnote a) of the Bank Act (see footnote b), proposes to make the annexed Regulations Amending the Insurance Business (Banks and Bank Holding Companies) Regulations.

Interested persons may make representations concerning 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 Jane Pearse, Director, Financial Institutions Division, Department of Finance, L’Esplanade Laurier, 15th Floor, East Tower, 140 O’Connor Street, Ottawa, Ontario K1A 0G5 (tel.: 613-992-1631; fax: 613-943-1334; email: finlegis@fin.gc.ca).

Ottawa, February 3, 2011

JURICA ČAPKUN
Assistant Clerk of the Privy Council

REGULATIONS AMENDING THE INSURANCE BUSINESS
(BANKS AND BANK HOLDING COMPANIES) REGULATIONS

AMENDMENTS

1. Section 2 of the Insurance Business (Banks and Bank Holding Companies) Regulations (see footnote 1) is amended by adding the following in alphabetical order:

“bank web page” means a web page that a bank uses to carry on business in Canada, including any information provided by the bank that is accessible on a telecommunications device. It does not include a web page that is only accessible by employees or agents of the bank; (page Web de banque)

2. The Regulations are amended by adding the following after section 2:

2.1 For the purposes of these Regulations, a web page is not a bank web page by reason only that the web page provides access to a bank web page or promotes the business of a bank in Canada.

3. Section 3 of the Regulations is replaced by the following:

3. A bank may carry on any aspect of the business of insurance, other than the underwriting of insurance, outside Canada.

4. Subparagraphs 6(b)(i) and (ii) of the Regulations are replaced by the following:

• (i) all the holders of credit or charge cards issued by the bank who regularly receive statements of account or notices of those statements,
• (ii) all the bank’s customers who are natural persons and who regularly receive statements of account or notices of those statements, or

5. Subparagraphs 7(1)(e)(i) and (ii) of the Regulations are replaced by the following:

• (i) all the holders of credit or charge cards issued by the bank who regularly receive statements of account or notices of those statements,
• (ii) all the bank’s customers who are natural persons and who regularly receive statements of account or notices of those statements, or

6. The Regulations are amended by adding the following after section 7:

WEB PROMOTION

7.1 (1) The promotion referred to in paragraph 6(b) may take place on a bank web page if it relates to an insurance company, agent or broker that deals only in authorized types of insurance and the promotion referred to in paragraph 7(1)(c) or (e) may take place on a bank web page if it relates to an authorized type of insurance.

(2) However, a bank shall not, on a bank web page, provide access to a web page — directly or through another web page — through which there is promotion of

• (a) an insurance company, agent or broker that does not deal only in authorized types of insurance; or
• (b) an insurance policy of an insurance company, agent or broker, or a service in respect of such a policy, that is not of only an authorized type of insurance.

7. Section 10 of the Regulations is replaced by the following:

10. A bank shall not carry on business in Canada on premises that are adjacent to the premises of an insurance company, agent or broker unless the bank clearly indicates to its customers that its business and the premises on which its business is carried on are separate and distinct from those of the insurance company, agent or broker.

COMING INTO FORCE

8. These Regulations come into force on the day on which they are registered.

[7-1-o]

Footnote a
S.C. 1997, c. 15, s. 45

Footnote b
S.C. 1991, c. 46

Footnote 1
SOR/92-330; SOR/2002-269