By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law: SOR/2019-43

Canada Gazette, Part II, Volume 153, Number 4

Registration

SOR/2019-43 February 8, 2019

CANADA DEPOSIT INSURANCE CORPORATION ACT

The Board of Directors of the Canada Deposit Insurance Corporation, pursuant to subsection 21(2) footnote a of the Canada Deposit Insurance Corporation Act footnote b, makes the annexed By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law.

Ottawa, December 5, 2018

The Minister of Finance, pursuant to subsection 21(3)footnote a of the Canada Deposit Insurance Corporation Act footnote b, approves the annexed By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law, made by the Board of Directors of the Canada Deposit Insurance Corporation.

Ottawa, February 4, 2019

William Francis Morneau
Minister of Finance

By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law

Amendments

1 The definition domestic systemically important bank in subsection 1(1) of the Canada Deposit Insurance Corporation Differential Premiums By-law footnote 1 is repealed.

2 (1) The portion of paragraph 4(1)(b) of the By-law before the formula is replaced by the following:

(2) Section 4 of the By-law is amended by adding the following after subsection (1):

(1.1) If a member institution is reclassified under subsection 5(2), the following formula shall be used to determine the result for the purposes of paragraph (1)(b):

(D × (E ÷ H)) + (F × (G ÷ H))

where

(3) The formula in subsection 4(2) of the By-law is replaced by the following:

(D × (E ÷ H)) + (F × (G ÷ H))

(4) The descriptions of D to G in subsection 4(2) of the By-law are replaced by the following:

3 Section 5 of the By-law is replaced by the following:

5 (1) The Corporation shall, before July 15 of each premium year, classify every member institution in accordance with sections 7, 8, 8.1 and 12.

(2) If an institution has been a member institution for a period of between 6 and 18 months on the day on which it is classified under subsection (1), the Corporation may review its classification and reclassify it in accordance with subsection 8.1(4) once the institution has been a member institution for at least 18 months.

4 Subsection 6(2) of the By-law is replaced by the following:

(2) The Corporation shall reclassify in accordance with sections 7, 8 or 8.1, as the case may be, a member institution referred to in subsection (1) if, based on the documents referred to in that subsection, such a reclassification is warranted.

5 (1) The portion of subsection 7(1) of the By-law before paragraph (a) is replaced by the following:

7 (1) A member institution shall be classified, subject to sections 8.1 and 12, in premium category 1, if

(2) Paragraph 7(2)(a) of the By-law is replaced by the following:

(3) Subsection 7(2.1) of the By-law is replaced by the following:

(2.1) A member institution that is a bridge institution shall be classified in premium category 1.

(4) Subsection 7(4) of the By-law is repealed.

6 Section 8 of the By-law is replaced by the following:

8 A member institution to which sections 7 and 8.01 do not apply shall be classified, subject to sections 8.1 and 12, in the premium category set out in column 1 of Schedule 1 that corresponds to the total score for the institution determined in accordance with section 9, 10 or 11, as the case may be, and set out in column 2.

8.01 A member institution that is a subsidiary of another member institution shall be classified, subject to sections 8.1 and 12,

7 (1) The portion of subsection 8.1(1) of the By-law before paragraph (a) is replaced by the following:

8.1 (1) A member institution, other than one classified in accordance with section 7 or subparagraph 8.01(a)(i), that was not in all material respects compliant with the Data Requirements By-law as of April 30 of the preceding premium year shall

(2) The portion of subsection 8.1(2) of the By-law before paragraph (a) is replaced by the following:

(2) A member institution, other than one classified in accordance with section 7 or subparagraph 8.01(a)(i), that was not in all material respects compliant with the Data Requirements By-law as of April 30 of each of the two preceding premium years shall

(3) Subsection 8.1(3) of the By-law is replaced by the following:

(3) A member institution, other than one classified in accordance with section 7 or subparagraph 8.01(a)(i), that was not in all material respects compliant with the Data Requirements By-law as of April 30 of each of the three preceding premium years shall be classified in premium category 4.

(4) A member institution that would otherwise be classified in accordance with section 7 or subparagraph 8.01(a)(i), that has been a member institution for at least 18 months and that is not in all material respects compliant with the Data Requirements By-law shall

8 The portion of section 10 of the By-law before paragraph (a) is replaced by the following:

10 Subject to subsection 11(4), if a member institution that started operating as a member institution after April 30 of the year preceding the filing year would be classified in premium category 1 in accordance with section 7 if it did not have any subsidiaries of the type described in paragraph 7(2)(b), the Corporation shall assign to that institution the highest of the total scores assigned to each of its subsidiaries that

9 (1) The portion of subsection 12(1) of the By-law before paragraph (a) is replaced by the following:

12 (1) A member institution shall be classified in premium category 4 if it

(2) Subsection 12(2) of the By-law is repealed.

10 Schedule 1 to the By-law is amended by replacing the references after the heading “SCHEDULE 1” with the following:

(Paragraphs 3(b) and 4(1)(b), subsections 4(1.1) and (2), section 8 and subparagraph 8.01(a)(ii))

11 (1) The portion of item 1 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law under the heading “1.3.1 Net Tier 1 Capital” is replaced by the following:

Indicate the net Tier 1 capital as set out in Schedule 1 – Ratio Calculations of the BCAR form.

(2) The portion of item 1 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law under the heading “1.3.2 Adjusted Tier 1 Capital Risk-Weighted Assets” is replaced by the following:

Indicate the adjusted Tier 1 Capital risk-weighted assets as set out in Schedule 1 – Ratio Calculations of the BCAR form.

12 Element 2.2 of item 2 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

2.2 Adjusted Tier 1 Capital Risk-Weighted Assets as of the End of the Fiscal Year Ending in the Year Preceding the Filing Year

Indicate the adjusted Tier 1 Capital risk-weighted assets as set out in Schedule 1 — Ratio Calculations of the BCAR form.

13 (1) Paragraph (a) under the heading “Elements” in item 6 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

(2) The portion of item 6 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law under the heading “6.1 Net Impaired On-Balance Sheet Assets” is replaced by the following:

Indicate the net impaired on-balance sheet assets as set out for the total of the column “Net Impaired Amount” in the Return of Allowances for Expected Credit Losses. If the result is negative, report “zero”.

(3) Table 6B of item 6 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is amended by adding a column with the title “Other contracts” to the right of the column entitled “Other commodity contracts”.

14 (1) Elements 7.4.11 to 7.4.15 of item 7 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law are replaced by the following:

7.4.11 Net Common Equity Tier 1 Capital (CET1 after all deductions)

Indicate the Net Common Equity Tier 1 Capital (CET1 after all deductions), as set out in Schedule 3 – Capital and TLAC Elements of the BCAR form.

7.4.12 Gross Common Equity Tier 1 Capital

Indicate the Gross Common Equity Tier 1 Capital, as set out in Schedule 3 – Capital and TLAC Elements of the BCAR form.

7.4.13 Total Deduction from Additional Tier 1 Capital

Indicate the Total Deduction from Additional Tier 1 Capital, as set out in Schedule 3 – Capital and TLAC Elements of the BCAR form.

7.4.14 Total Deduction from Tier 2 Capital

Indicate the Total Deduction from Tier 2 Capital, as set out in Schedule 3 – Capital and TLAC Elements of the BCAR form.

7.4.15 Eligible stage 1 and stage 2 allowance

Indicate the Eligible stage 1 and stage 2 allowance (re standardized approach), as set out in Schedule 3 – Capital and TLAC Elements of the BCAR form.

(2) The portion of item 7 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law under the heading “7.4.16 Excess allowance” is replaced by the following:

Indicate the Excess allowance (re IRB approach), as set out in Schedule 3 – Capital and TLAC Elements of the BCAR form.

(3) Element 7.4.23 of item 7 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

7.4.23 Stage 1 and Stage 2 allowance on balance sheet assets

Indicate the Stage 1 and Stage 2 allowance on balance sheet assets for capital purposes, as set out in Schedule 45 – Balance Sheet Coverage by Risk Type and Reconciliation to Consolidated Balance Sheet of the BCAR form.

15 (1) The portion of item 8 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law under the heading “8.1 Total Mortgage Loans” is replaced by the following:

The total mortgage loans is the total of the amounts set out in the column “Total” for “Mortgage Loans, less allowance for expected credit losses” in Section I — Assets of the Consolidated Monthly Balance Sheet, before deducting any allowance for expected credit losses.

(2) The portion of item 8 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law under the heading “8.2 Total Non-Mortgage Loans” is replaced by the following:

The total non-mortgage loans is the total of the amounts set out in the column “Total” for “Non-Mortgage Loans, less allowance for expected credit losses” in Section I – Assets of the Consolidated Monthly Balance Sheet, before deducting any allowance for expected credit losses.

(3) The portion of item 8 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law under the heading “8.4 Total Acceptances” is replaced by the following:

The total acceptances is the total of the amounts set out in the column “Total” for “Customers liability under acceptances, less allowance for expected credit losses” in Section I — Assets of the Consolidated Monthly Balance Sheet.

(4) The second paragraph under the heading “Residential Properties Mortgage Loans” in item 8 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

Calculate the total mortgage loans of this type by adding together the amounts set out for “Total Residential” in the columns “Insured” and “Uninsured” under “Gross Mortgage Loans Outstanding” in Section III of the Mortgage Loans Report, before deducting any allowance for expected credit losses.

(5) Paragraphs (a) and (b) under the heading “Land Development Mortgage Loans” in item 8 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law are replaced by the following:

(6) The second paragraph under the heading “Hotel and Motel Properties Mortgage Loans” in item 8 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

Calculate the total mortgage loans of this type by adding together the amounts set out for “Hotels/motels” in the columns “Insured” and “Uninsured” under “Gross Mortgage Loans Outstanding” in Section III of the Mortgage Loans Report, before deducting any allowance for expected credit losses.

(7) The second paragraph under the heading “Industrial Properties Mortgage Loans” in item 8 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

Calculate the total mortgage loans of this type by adding together the amounts set out for “Industrial buildings” in the columns “Insured” and “Uninsured” under “Gross Mortgage Loans Outstanding” in Section III of the Mortgage Loans Report, before deducting any allowance for expected credit losses.

(8) The second paragraph under the heading “Single Family Dwelling Properties Mortgage Loans” in item 8 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

Calculate the total mortgage loans of this type by adding together the amounts set out for “Single detached” and “Condominiums” in the columns “Insured” and “Uninsured” under “Gross Mortgage Loans Outstanding” in Section III of the Mortgage Loans Report, before deducting any allowance for expected credit losses.

(9) The second paragraph under the heading “Second or Subsequent Mortgage Loans Outstanding” in item 8 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

The total mortgage loans of this type is the amount set out for “Second and subsequent mortgages outstanding” in the column “Amounts Outstanding” in the second table of the Memo Items to Section IV of the Mortgage Loans Report, before deducting any allowance for expected credit losses.

16 The portion of item 8-1 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law under the heading “8-1.1.8 Impairment” is replaced by the following:

Impairment is the total amount set out in the column “Credit Impaired Assets” less the aggregate of the total amount set out in the column “Collectively Assessed Allowance” and the total amount set out in the column “Individually Assessed Allowance” under “Assets and expected credit losses allowances” in the Memo Items to Section I of the Consolidated Monthly Balance Sheet.

17 (1) The second paragraph under the heading “Agriculture” in the Industry Sector List in item 9 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

Calculate the total by adding together the amounts in the columns “TC” under “Resident Loan Balances” and “Non-Resident Loan Balances” and subtracting the amount set out in the column “TC” under “Allowance for Expected Credit Losses”, all as set out for “Agriculture” in the Non-Mortgage Loans Report.

(2) The second paragraph under the heading “Fishing and Trapping” in the Industry Sector List in item 9 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

Calculate the total by adding together the amounts in the columns “TC” under “Resident Loan Balances” and “Non-Resident Loan Balances” and subtracting the amount in the column “TC” under “Allowance for Expected Credit Losses”, all as set out for “Fishing and Trapping” in the Non-Mortgage Loans Report.

(3) The second paragraph under the heading “Logging and Forestry” in the Industry Sector List in item 9 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

Calculate the total by adding together the amounts in the columns “TC” under “Resident Loan Balances” and “Non-Resident Loan Balances” and subtracting the amount in the column “TC” under “Allowance for expected credit losses”, all as set out for “Logging and Forestry” in the Non-Mortgage Loans Report.

(4) The second paragraph under the heading “Mining, Quarrying and Oil Wells” in the Industry Sector List in item 9 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

Calculate the total by adding together the amounts in the columns “TC” under “Resident Loan Balances” and “Non-Resident Loan Balances” and subtracting the amount in the column “TC” under “Allowance for expected credit losses”, all as set out for “Mining, Quarrying and Oil Wells” in the Non-Mortgage Loans Report.

(5) The second paragraph under the heading “Manufacturing” in the Industry Sector List in item 9 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

Calculate the total by adding together the amounts in the columns “TC” under “Resident Loan Balances” and “Non-Resident Loan Balances” and subtracting the amount in the column “TC” under “Allowance for expected credit losses”, all as set out for “Manufacturing” in the Non-Mortgage Loans Report.

(6) The second paragraph under the heading “Construction/Real Estate” in the Industry Sector List in item 9 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

Calculate the total by adding together the amounts in the columns “TC” under “Resident Loan Balances” and “Non-Resident Loan Balances” and subtracting the amount in the column “TC” under “Allowance for expected credit losses”, all as set out for “Construction/Real Estate” in the Non-Mortgage Loans Report.

(7) The second paragraph under the heading “Transportation, Communication and Other Utilities” in the Industry Sector List in item 9 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

Calculate the total by adding together the amounts in the columns “TC” under “Resident Loan Balances” and “Non-Resident Loan Balances” and subtracting the amount in the column “TC” under “Allowance for expected credit losses”, all as set out for “Transportation, Communication and Other Utilities” in the Non-Mortgage Loans Report.

(8) The second paragraph under the heading “Wholesale Trade” in the Industry Sector List in item 9 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

Calculate the total by adding together the amounts in the columns “TC” under “Resident Loan Balances” and “Non-Resident Loan Balances” and subtracting the amount in the column “TC” under “Allowance for expected credit losses”, all as set out for “Wholesale Trade” in the Non-Mortgage Loans Report.

(9) The second paragraph under the heading “Retail” in the Industry Sector List in item 9 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

Calculate the total by adding together the amounts in the columns “TC” under “Resident Loan Balances” and “Non-Resident Loan Balances” and subtracting the amount in the column “TC” under “Allowance for expected credit losses”, all as set out for “Retail” in the Non-Mortgage Loans Report.

(10) The second paragraph under the heading “Service” in the Industry Sector List in item 9 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

Calculate the total by adding together the amounts in the columns “TC” under “Resident Loan Balances” and “Non-Resident Loan Balances” and subtracting the amount in the column “TC” under “Allowance for expected credit losses”, all as set out for “Service” in the Non-Mortgage Loans Report.

(11) The second paragraph under the heading “Multiproduct Conglomerates” in the Industry Sector List in item 9 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

Calculate the total by adding together the amounts in the columns “TC” under “Resident Loan Balances” and “Non-Resident Loan Balances” and subtracting the amount set out in the column “TC” under “Allowance for expected credit losses”, all as set out for “Multiproduct Conglomerates” in the Non-Mortgage Loans Report.

(12) The second paragraph under the heading “Others (Private Not for Profit Institutions, Religious, Health and Educational Institutions)” in the Industry Sector List in item 9 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

Calculate the total by adding together the amounts in the columns “TC” under “Resident Loan Balances” and “Non-Resident Loan Balances” and subtracting the amount set out in the column “TC” under “Allowance for expected credit losses”, all as set out for “Others (Private Not for Profit Institutions, Religious, Health and Educational Institutions)” in the Non-Mortgage Loans Report.

18 Item 11 of Part 2 of Schedule 3 to the By-law is amended by replacing the reference “8-1.2 > 50%” in column 2 with the reference “8-1.2 ≥ 50%”.

Coming into Force

19 This By-law comes into force on the day on which it is registered.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the By-law.)

Background

The Board of Directors of the Canada Deposit Insurance Corporation (CDIC) made the Canada Deposit Insurance Corporation Differential Premiums By-law (By-law) on March 3, 1999, pursuant to subsection 21(2) and paragraph 11(2)(g) of the Canada Deposit Insurance Corporation Act (CDIC Act). Subsection 21(2) of the CDIC Act authorizes the CDIC Board of Directors to make by-laws establishing a system of classifying member institutions into different categories, setting out the criteria or factors the CDIC will consider in classifying members into categories, establishing the procedures the CDIC will follow in classifying members, and fixing the amount of, or providing a manner of determining the amount of, the annual premium applicable to each category. The CDIC Board of Directors amended the By-law on January 12 and December 6, 2000, July 26, 2001, March 7, 2002, March 3, 2004, February 9 and April 15, 2005, February 8 and December 6, 2006, December 3, 2008, December 2, 2009, December 8, 2010, December 7, 2011, December 5, 2012, December 4, 2013, April 22, 2015, February 4 and December 7, 2016, December 6, 2017, and December 5, 2018.

Issues

The CDIC annually reviews the By-law to confirm it is technically up to date. As a result, technical amendments are made to the By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law (the Amending By-law). The Amending By-law primarily targets the following two main issues.

1. Changes to Reporting Form

The amendments incorporate the changes made to the Office of the Superintendent of Financial Institutions (OSFI) forms that are referenced in the By-law.

2. Clarification to existing requirements and changes to the enforcement mechanism in the Canada Deposit Insurance Corporation Data and System Requirements By-law

The amendments clarify existing requirements and add information where required to ensure the completeness of the By-law. Amendments are also made to the Canada Deposit Insurance Corporation Data and System Requirements By-law enforcement mechanism to clarify that a member institution will only be reclassified where that member is not in all material respects compliant with that By-law. Related amendments ensure any reclassification associated with non-compliance would only apply to the member institution that was determined to be non-compliant, and that its member subsidiaries would not obtain the classification of the parent member in such circumstance.

Objectives

The main objective of the Amending By-law is to address the technical issues noted above.

Description

The following table provides more detail about the amendments in the Amending By-law.

Amending By-law Section

By-law Section

Explanation

By-law

[1]

1(1)

Amendment repeals unnecessary definition.

[2]

4(1)(b), 4(1.1) and 4(2)

Amendments introduce a formula to ensure that any additional premiums for a new member as a result of reclassification during the premium year is only calculated in respect of the number of days that remain in the premium year.

[3, 4, 5(1) and 5(2)]

5, 6(2), 7(1), and 7(2)(a)

Amendments clarify that a reclassification as a result of non-compliance with a requirement would not result in an automatic reclassification of that member’s subsidiaries that are also member institutions.

[5(3)]

7(2.1)

Amendment clarifies that a member institution that is a bridge institution shall be classified in category 1.

[5(4)]

7(4)

Amendment repeals unnecessary subsection.

[6]

8 and 8.01

Amendments clarify that a reclassification as a result of non-compliance with a requirement would not result in an automatic reclassification of that member’s subsidiaries that are also member institutions.

[7(1), (2), and (3)]

8.1(1), (2) and (3)

Amendments clarify that a member institution will only be reclassified where that member is not in all material respects compliant with the Canada Deposit Insurance Corporation Data and System Requirements By-law.

[8]

10

Amendment removes unnecessary reference.

[9]

12(1) and (2)

Amendments remove unnecessary reference, and repeals a provision that causes an automatic reclassification of the parent member where its member subsidiaries fail to provide the required information.

Schedule 1, Premium Categories

[10]

Schedule 1

Amendments to correct the section references in the heading.

Schedule 2, Part 2, Reporting Form

[11(1) and (2)]

Item 1

Amendments align wording with that used in the OSFI forms.

[12]

Item 2

Amendments align wording with that used in the OSFI forms.

[13(1), (2) and (3)]

Item 6

Amendments align wording in the "Elements" section with that used in the OSFI forms.

[14(1), (2) and (3)]

Item 7

Amendments align wording with that used in the OSFI forms.

[15(1) to (9)]

Item 8

Amendments align wording with that used in the OSFI forms.

[16]

Item 8-1

Amendments align wording with that used in the OSFI forms.

[17(1) to (12)]

Item 9

Amendments align wording with that used in the OSFI forms.

Schedule 3, Part 2, Scoring Grid

[18]

Item 11

To correct the scoring methodology in column 2.

“One-for-One” Rule

The “One-for-One” Rule does not apply to this Amending By-law, as there is no change in administrative costs to business.

Small business lens

The small business lens does not apply to this Amending By-law, as there are no costs to small business.

Alternatives

There are no available alternatives. The amendments must be done by way of by-law.

Consultation

The Amending By-law was prepublished in the Canada Gazette, Part I, on October 27, 2018. The comment period closed on November 26, 2018. No comments were received.

Rationale

The Amending By-law will ensure the By-law remains technically up to date, achieves the stated objective, and addresses the identified issues. The Amending By-law would not impose any additional regulatory costs or administrative burden on industry.

Implementation, enforcement and service standards

The Amending By-law will come into effect for the 2019 premium year. There are no compliance or enforcement issues.

Contact

Noah Arshinoff
Manager
Insurance
Canada Deposit Insurance Corporation
50 O’Connor Street, 17th Floor
Ottawa, Ontario
K1P 6L2
Telephone: 613-995-6548
Email: narshinoff@cdic.ca