Canada Deposit Insurance Corporation Resolution Planning By-law: SOR/2019-138

Canada Gazette, Part II, Volume 153, Number 11

Registration

SOR/2019-138 May 15, 2019

CANADA DEPOSIT INSURANCE CORPORATION ACT

The Board of Directors of the Canada Deposit Insurance Corporation, pursuant to paragraph 11(2)(e) ^{footnote a} of the Canada Deposit Insurance Corporation Act ^{footnote b}, makes the annexed Canada Deposit Insurance Corporation Resolution Planning By-law.

Ottawa, March 6, 2019

The Minister of Finance, pursuant to subsection 11(2.01) ^{footnote c} of the Canada Deposit Insurance Corporation Act ^{footnote b}, approves the annexed Canada Deposit Insurance Corporation Resolution Planning By-law, made by the Board of Directors of the Canada Deposit Insurance Corporation.

Ottawa, April 10, 2019

William Francis Morneau
Minister of Finance

Canada Deposit Insurance Corporation Resolution Planning By-law

Interpretation

Definitions

1 The following definitions apply in this By-law.

Act means the Canada Deposit Insurance Corporation Act. (Loi)

bank group means a domestic systemically important bank and its affiliates, any entity in which that bank has a substantial investment, as defined in section 2 of the Bank Act, and any business enterprise that that bank operates with other persons, including a joint venture or a special purpose vehicle. (groupe bancaire)

critical function means an activity that is performed by an entity within a bank group for persons not affiliated with the bank group and whose absence or failure would have an adverse effect on the stability of the financial system or on the functioning of the economy in Canada. (fonction essentielle)

critical shared service means an activity that is performed by an entity within a bank group or an external provider for one or more business units or legal entities of the bank group and whose absence or failure would lead to the cessation of, or present a material risk to the continuity of, critical functions. (service partagé essentiel)

material change means a change in a bank group’s legal structure, business, operations, critical functions, critical shared services or material legal entities, or in the laws and regulations applicable to the bank group, that would require one or more amendments to the bank’s resolution plan. (changement important)

material legal entity means a legal entity or branch within a bank group that meets at least one of the following criteria:

• (a) it performs a critical function or a critical shared service;
• (b) the cessation or disruption of its operations might prevent the implementation of the bank’s resolution strategy; or
• (c) it is a member institution. (entité juridique importante)

resolution means the exercise by the Corporation of its powers under paragraph 7(d) of the Act, or the exercise of similar powers by an authority in another jurisdiction within or outside Canada. (règlement)

resolution plan means a domestic systemically important bank’s plan for the bank group’s resolution. (plan de règlement)

Submission and Maintenance of a Resolution Plan

Approval

2 (1) Any resolution plan submitted to the Corporation by a bank under section 39.01 of the Act must first be approved by the bank’s board of directors or by a delegated committee of the bank’s board of directors, unless otherwise specified by the Corporation.

Partial plan

(2) The Corporation may request that a bank submit only a partial resolution plan.

Policies and procedures for updating resolution plan

3 (1) The bank must establish policies and procedures that ensure that the resolution plan is maintained, tested, regularly reviewed against the current legal, financial, regulatory and operational characteristics of the bank group and is updated to reflect any material change.

Copy provided to Corporation

(2) The bank must provide, on the Corporation’s request, a copy of the policies and procedures referred to in paragraph (1) and a summary of the maintenance and testing activities undertaken by the bank in respect of the resolution plan.

Contents of a Resolution Plan

Contents

4 A resolution plan must contain

• (a) a description of each critical function;
• (b) a description of each critical shared service;
• (c) a description of each material legal entity;
• (d) a resolution strategy that meets the requirements set out in section 5;
• (e) the bank’s assessment of how the bank group’s legal structure, operations and financial arrangements will support the implementation of the resolution strategy;
• (f) the bank’s assessment of how the resolution strategy will minimize reliance on public sector financial assistance and ensure that material legal entitie have access to sufficient loss-absorbing capacity, liquidity and funding during the resolution;
• (g) a list of the bank group’s regulators and a summary of the regulatory requirements applicable to the resolution strategy and a description of how those requirements will be satisfied in a manner that supports implementation of the resolution strategy;
• (h) a list of the bank group’s material contractual arrangements and a description of how the contractual requirements will be met in a manner that supports the implementation of the resolution strategy;
• (i) the bank’s analysis of how the bank group’s governance practices, operational capabilities and information systems will support the implementation of the resolution strategy;
• (j) the bank’s assessment of impediments to the implementation of the resolution strategy, including a summary of the impact of those impediments on the Corporation’s ability to implement the resolution strategy and on the continuity of critical functions; and
• (k) a work plan that describes the planned activities for the maintenance, validation and testing of the resolution plan, including activities to account for any material change and proposes remedial actions and time frames to address deficiencies.

Resolution strategy

5 The resolution strategy must describe

• (a) how the Corporation will carry out the resolution of each member institution in a manner that supports the continuity of critical functions;
• (b) how each material legal entity other than a member institution
  • (i) will continue to operate in a manner that supports the continuity of critical functions;
  • (ii) can be disposed of or wound down without impeding the continuity of critical functions; or
  • (iii) can be placed in an orderly insolvency proceeding or resolved without impeding the continuity of critical functions; and
• (c) how the profile and operations of the bank group can be reduced through divestitures or wound down, with minimal adverse effect on the stability of the financial system in Canada.

Material Change

Notice of material change

6 The bank must notify the Corporation as soon as feasible after the occurrence of a material change.

Material change report

7 (1) On receipt of the notification required under section 6, the Corporation may request that the bank provide a material change report, which must include

• (a) a brief description of the material change;
• (b) a reference to the sections of the resolution plan affected by the material change; and
• (c) the bank’s plan and schedule for updating the resolution plan to account for the material change.

Time limit for providing report

(2) The bank must provide the material change report within 30 days after the day on which the Corporation makes the request, unless the Corporation has specified a longer period.

Work plan

8 The bank must include, upon request by the Corporation, the plan referred to in paragraph 7(1)(c) in its work plan for the next submission of its resolution plan.

Notice of Compliance and Request for Revised Work Plan

Notice of compliance

9 Following its assessment of the resolution plan, the Corporation must notify the bank in writing whether the resolution plan complies with this By-law.

Particulars of non-compliance

10 If the resolution plan does not comply with this By-law, the Corporation must advise the bank in writing of the deficiencies that resulted in the non-compliance and request that the bank submit a revised work plan.

Revised work plan

11 (1) The revised work plan must describe the remedial actions to be taken by the bank to address the relevant deficiencies and the schedule required to complete those actions.

Approval of revised work plan

(2) The revised work plan submitted to the Corporation must first be approved by the bank’s board of directors or by a delegated committee of the bank’s board of directors, unless otherwise specified by the Corporation.

Time limit

(3) The revised work plan must be submitted in writing to the Corporation within 30 days after the day on which the Corporation makes the request, unless the Corporation has specified a longer period.

Decision

(4) On receipt of the revised work plan, the Corporation must determine whether the resolution plan

• (a) complies with this By-law;
• (b) is partially non-compliant, meaning that it contains one or more deficiencies that would prevent the implementation of the bank’s resolution strategy but for which an acceptable work plan is being substantially complied with; or
• (c) is materially non-compliant, meaning that it contains one or more deficiencies for which an acceptable work plan is either not in place or not being substantially complied with.

Notice

(5) The Corporation must notify the bank in writing of its decision.

Subsequent revision to work plan

(6) Any subsequent revision to the work plan must be agreed to by the Corporation and, unless otherwise specified by the Corporation, must first be approved by the bank’s board of directors or by a delegated committee of the bank’s board of directors.

Coming into Force

S.C. 2017, c. 20

12 This By-law comes into force on the day on which section 110 of the Budget Implementation Act, 2017, No. 1 comes into force, but if it is registered after that day, it comes into force on the day on which it is registered.

REGULATORY IMPACT ANALYSIS STATEMENT

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

Issues

The Canada Deposit Insurance Corporation Resolution Planning By-law (the By-law) prescribes the requirements for Canada’s domestic systemically important banks (DSIBs) to develop, submit and maintain resolution plans.

Background

The federal government amended the Canada Deposit Insurance Corporation Act (CDIC Act) on June 22, 2017, providing the Board of Directors of the Canada Deposit Insurance Corporation (the Corporation) with the authority to make a by-law respecting the development, submission and maintenance of resolution plans by the DSIBs, including specifying the contents of those plans.

As Canada’s resolution authority for its member institutions, the Canada Deposit Insurance Corporation is working with the DSIBs to ensure their resolution plans demonstrate that they can fail safely, so that Canadians can have confidence in the stability of the financial system in Canada. The approach is aligned with international standards for bank resolution, as set by the Financial Stability Board, which requires the development of adequate resolution plans for systemically important banks.

The By-law formalizes the framework for the development, submission and maintenance of resolution plans by DSIBs and a process for highlighting and addressing deficiencies in those plans. The By-law incorporates existing resolution planning criteria developed by the Canada Deposit Insurance Corporation and is an important element in support of the work of the Corporation towards DSIB resolvability.

Objectives

The principal objective of the By-law is to establish a statutory framework pursuant to which DSIBs develop, submit and maintain resolution plans that are critical to support resolvability and financial sector stability. The statutory framework incentivizes DSIBs to meet the Canada Deposit Insurance Corporation’s expectations with respect to resolution planning by setting out a process to advise the DSIBs of resolution plan deficiencies and of whether they are in compliance with the By-law and will require DSIBs to develop work plans detailing the remedial actions necessary to address those deficiencies.

Description

The table below contains the main elements of the By-law:

By-law Section	Explanation
1	Provides definitions for terms used throughout the By-law and clarifies that the By-law requirements apply to DSIBs only.
2	Provides how the resolution plan must be approved.
3	Provides that the DSIB must establish policies and procedures for the maintenance, testing and review of the resolution plan, and provide these and a summary of the maintenance and testing activities undertaken by the DSIB to the Corporation upon request.
4 and 5	Sets out the required contents of the resolution plan.
6, 7 and 8	Provides that the DSIB must notify the Corporation of any material change, and that the Corporation may request a material change report, including the DSIB’s plan to address the material change and timelines for updating the resolution plan. The Corporation may request that this plan be included in the next submission of its resolution plan.
9 and 10	Provide that the Corporation will notify the DSIB whether the resolution plan complies with the By-law, will advise the DSIB of the particulars of any non-compliance, and will request a revised work plan.
11	Sets out the contents and processes associated with the delay and approval of the revised work plan, and provides that the Corporation must notify the DSIB in writing of the final compliance determination.

“One-for-One” Rule

The “One-for-One” Rule does not apply to this By-law.

Small business lens

The Canada Deposit Insurance Corporation Resolution Planning By-law applies to Canada’s DSIBs only. The small business lens does not apply to this By-law.

Consultation

In February 2018, the Corporation undertook a public consultation, including targeted consultations with the DSIBs on the elements of the proposed By-law. Further consultations with the DSIBs took place in June and December 2018. Feedback from industry has been considered throughout the development of the By-law. Prepublication in the Canada Gazette, Part I, took place on February 2, 2019, for a 30-day comment period. No comments were received.

Rationale

The principal objective of the By-law is to establish a statutory framework pursuant to which the DSIBs develop, submit and maintain resolution plans that are critical to support resolvability and financial sector stability.

Implementation, enforcement and service standards

This By-law comes into force on the day on which section 110 of the Budget Implementation Act, 2017, No. 1 comes into force or, if it is registered after that day, on the day on which it is registered.

Contact

Emiel van der Velden
Director
Insurance
Canada Deposit Insurance Corporation
50 O’Connor Street, 17th Floor
Ottawa, Ontario
K1P 6L2
Telephone: 613‑943‑2773
Email: evandervelden@cdic.ca