Vol. 151, No. 28 — July 15, 2017

By-law Amending the Canada Deposit Insurance Corporation Deposit Insurance Information By-law

Statutory authority

Canada Deposit Insurance Corporation Act

Sponsoring agency

Canada Deposit Insurance Corporation

REGULATORY IMPACT ANALYSIS STATEMENT

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

Issues

Substantive amendments to the Canada Deposit Insurance Corporation Deposit Insurance Information By-law (the By-law) are necessary to reflect the importance of electronic banking, and the resultant impact on how depositors receive information about deposit insurance protection. In addition, amendments are required to ensure the By-law continues to contribute to consumer awareness about deposit insurance protection. The Canada Deposit Insurance Corporation (CDIC) is proposing both substantive and technical amendments in the By-law Amending the Canada Deposit Insurance Corporation Deposit Insurance Information By-law (the proposed Amending By-law).

Background

The Canada Deposit Insurance Corporation Deposit Insurance Information By-law governs what member institutions of CDIC can say about their membership status and about the federal deposit insurance protection provided by CDIC. The Board of Directors of CDIC made the By-law on December 4, 1996, pursuant to paragraph 11(2)(f) of the Canada Deposit Insurance Corporation Act (CDIC Act). Paragraph 11(2)(f) of the CDIC Act authorizes the CDIC Board of Directors to make by-laws respecting representations by member institutions and other persons with respect to (i) what constitutes, or does not constitute, a deposit; (ii) what constitutes, or does not constitute, a deposit that is insured by the Corporation; and (iii) who is a member institution. The CDIC Board of Directors amended the By-law on November 26, 1997, September 29, 1999, December 1, 1999, October 10, 2001, December 6, 2006, and March 3, 2016.

CDIC member institutions should provide clear, simple and not misleading information about deposit protection to their clients to contribute to overall public awareness. Fostering awareness about deposit insurance helps to ensure that depositors have the information they need to make informed financial decisions. Awareness also enhances confidence in the deposit insurance coverage system, thereby contributing to financial stability by mitigating the risk of bank runs.

The current By-law prohibits the making of false, misleading or deceptive representations about what is or is not a deposit, what is or is not an insured deposit, or who is a member of CDIC. The By-law prescribes where member institutions must display the CDIC membership sign and the CDIC brochure at places of business, points of service, and websites. The By-law also mandates how and where member institutions can make references to their membership status in advertisements, and must use a warning statement when referring to financial products not eligible for CDIC insurance.

In September 2016, CDIC launched a public consultation on the By-law with the goal of ensuring it continues to contribute to depositors being informed about deposit insurance protection at the appropriate time, in a clear and simple manner, and regardless of the deposit distribution channel.

Environmental considerations

CDIC assessed a number of environmental considerations that may impact how member institutions provide information about membership status, deposits and deposit insurance to their clients. These include the following:

Objectives

The proposed Amending By-law addresses the following two issues:

1. Enhanced clear, simple and not misleading information to depositors

The amendments go toward ensuring that depositors receive clear, simple and not misleading information about which financial institutions are members of the CDIC deposit insurance program, and about the deposit insurance protection provided by CDIC. Amendments will, once in effect, require members to provide depositors, when opening an eligible deposit account, with a CDIC brochure containing information about deposit insurance. Amendments will also require increased disclosures by member institutions about trade names used in the course of a member institution’s eligible deposit-taking business. The amendments will remove the requirement for member institutions to negative stamp advertisements for money market mutual funds.

2. Ensuring all depositors receive useful information on deposit insurance at the appropriate time, prominently displayed across all distribution channels

The amendments result in key information about deposit insurance being readily available and visible to depositors on all distribution channels. The primary changes proposed under this theme include updates to the terminology used in the By-law to capture various electronic business channels used for deposit-taking activities (e.g. websites, online banking, mobile apps), expanded and enhanced in-branch display requirements for the CDIC membership sign, and expanded and enhanced electronic banking display requirements for the CDIC membership sign and the CDIC brochure.

Description

The changes are reflected in the proposed Amending By-law. The following table provides more detail about the substantive amendments.

Amending By-law section

Explanation

1

The definition of point of service is replaced with a definition of electronic business site to reflect the shift towards electronic business channels. The definition of place of business has been amended to clarify that it includes a physical location where a person may commence a transaction to open a deposit account with the assistance of a representative of the member institution.

2

To provide the members with flexibility with respect to the display of a membership sign or badge in digital form. The amendment clarifies that changes may be made to the overall size of the sign or badge so long as the proportions, as supplied by the Corporation, are maintained and the content is clearly visible and legible.

Aimed at ensuring accuracy and standardization of membership disclosures, the amendment clarifies that if a member institution makes a representation about its status as a member institution in its advertising, other than by displaying the membership sign or badge, it shall only use the representations provided. Members are provided a degree of flexibility such that representations may appear anywhere in the advertising of a member institution, if the location at which and the manner in which they are displayed do not give the impression that a person is a member institution when it is not a member institution or that a deposit is insured by the Corporation when it is not eligible to be insured by the Corporation.

To require appropriate disclosure of CDIC membership status, members must prominently display the CDIC membership sign within each branch so that it is visible from the main areas of the branch. The requirement can be met through physical displays or electronic displays on screens in the branch. CDIC will supply members with a physical and digital sign for this purpose.

A member institution shall also display the membership sign in digital form on the home page of its website, either directly, or by way of a single hyperlink that describes that page as the location links to a page where information about its status as a member institution is available.

To require member institutions to ensure that the location at which and the manner in which the membership sign is displayed does not give the impression that a person is a member institution when it is not a member institution or that a deposit is insured by the Corporation when it is not eligible to be insured by the Corporation.

The required contents of the membership sign are repealed to provide the Corporation with additional design flexibility.

3

To ensure depositors are informed about CDIC deposit insurance protection at the appropriate time, a member institution shall, as part of the account opening process for a deposit that is eligible to be insured by the Corporation, provide a depositor with a brochure in the same manner as the other account opening documents are provided to the depositor.

The Corporation will supply each member with the digital version of the brochure for that purpose.

Member institutions are provided with the flexibility to make representations about the subject matter of the brochure, provided such representations are not false, misleading or deceptive.

To provide for additional awareness about CDIC deposit insurance protection and CDIC brand recognition, a member institution shall also display the digital form of a badge supplied by the Corporation on specified locations of a member’s electronic banking sites. The digital badge must contain a hyperlink to the contents of the CDIC brochure.

The Amending By-law clarifies that, with respect to a member institution’s automated teller machines (ATM) at which a person may make deposits, the badge would not contain a hyperlink to the content of the brochure. To provide the member with flexibility to meet the ATM display requirements, the proposed Amending By-law provides that the member may display the badge in physical or digital form.

To promote the delivery of accurate information, a member institution shall ensure that the location at which and the manner in which the badge is displayed does not give the impression that a person is a member institution when it is not a member institution or that a deposit is insured by the Corporation when it is not eligible to be insured by the Corporation.

The amendments clarify that warning statements on instruments are necessary only in respect of deposits that are not eligible for insurance by the Corporation.

To reduce burden, the requirement that certain mutual fund advertisements be accompanied by a warning statement is repealed.

6

In light of the increased use of trade names, and the need to appropriately inform depositors about CDIC deposit insurance coverage when a trade name is used in the course of a member’s eligible deposit-taking activities, each member shall:
(a) prepare and maintain an up-to-date list of each trade name that is used in the course of its deposit-taking activities; (b) make the list available on a prescribed location; (c) provide the Corporation with a copy of the list; (d) provide the Corporation with not less than 15 days’ notice of any new trade name to be used in the course of its eligible deposit-taking activities; and (e) provide the Corporation with the authority to make the contents of the list, and any updates to the list, available to the public.

7

To hold senior officers of the CDIC member to a high standard of diligence regarding compliance with the requirements, a member institution shall certify whether or not it is in compliance with the By-law and shall submit the certification with the Return of Insured Deposits that it submits under subsection 22(1) of the Act.

8

To provide member institutions with sufficient time to implement the requirements of the By-law, the By-law will come into force 12 months after the By-law is made. The repeal of the requirement that certain statements must accompany mutual fund advertisements comes into force upon approval of the By-law.

“One-for-One” Rule

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

Small business lens

The small business lens does not apply to this proposal.

Consultation

On September 12, 2016, CDIC published a consultation paper outlining key elements of proposed amendments to the By-law. The consultation with the public closed on October 28, 2016.

CDIC received five responses to the consultation paper from stakeholders. Respondents generally understood CDIC’s objectives for amending the By-law, but indicated a desire for flexibility in meeting the proposed requirements. In January 2017, CDIC met or held calls with eight member institutions and one industry association to clarify the intent of the proposals, and to highlight the flexibility that members have to implement the proposals. Respondents also expressed concerns with the proposed six-month implementation period. To give CDIC member institutions sufficient time to implement the proposed requirements, CDIC has lengthened the transition period to 12 months.

Rationale

Research shows that fostering awareness about deposit insurance helps to ensure that depositors have the information they need to make informed financial decisions. It also enhances confidence in the deposit insurance system, thereby mitigating the risk of bank runs and contributing to financial stability. The past decade has seen a migration toward electronic banking. The proposed amendments ensure the By-law reflects the deposit-taking environment and continues to contribute to depositor awareness about the federal deposit insurance protection framework. The proposed Amending By-law would achieve each of the stated objectives.

Implementation, enforcement and service standards

The majority of the proposed amendments will come into force 12 months following the day on which the By-law is registered. There are no additional compliance or enforcement issues.

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

PROPOSED REGULATORY TEXT

Notice is given that the Board of Directors of the Canada Deposit Insurance Corporation, pursuant to paragraph 11(2)(f) (see footnote a) of the Canada Deposit Insurance Corporation Act (see footnote b), proposes to make the annexed By-law Amending the Canada Deposit Insurance Corporation Deposit Insurance Information By-law.

Interested persons may make representations concerning the proposed By-law 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 Emiel van der Velden, Director, Insurance, Canada Deposit Insurance Corporation, 50 O’Connor Street, Ottawa, Ontario K1P 6L2 (email: members@cdic.ca).

Ottawa, June 14, 2017

Michèle Bourque
President and Chief Executive Officer
Canada Deposit Insurance Corporation

By-law Amending the Canada Deposit Insurance Corporation Deposit Insurance Information By-law

Amendments

1 (1) The definition point of service in section 1 of the Canada Deposit Insurance Corporation Deposit Insurance Information By-law (see footnote 1) is repealed.

(2) The definition place of business in section 1 of the By-law is replaced by the following:

place of business means a physical location in Canada where a member institution carries on business and where a person may make a deposit or commence a transaction to open a deposit account with the assistance of a representative of the member institution, but does not include an automated teller machine. (lieu d’affaires)

(3) Section 1 of the By-law is amended by adding the following in alphabetical order:

electronic business site means a website or other electronic site that is used by a member institution to carry on business and at which a person may make a deposit or commence a transaction to open a deposit account with or without the assistance of a representative of the member institution, and, for greater certainty, includes an automated teller machine. (site d’affaires électroniques)

2 Sections 3 to 5 of the By-law are replaced by the following:

3 (1) When a member institution makes representations with respect to any of the matters referred to in paragraphs 2(a) to (c), the representations must be made in accordance with sections 4 to 11.

(2) A member institution whose policy of deposit insurance is terminated or cancelled must immediately remove from each of its places of business and each of its electronic business sites all references to its status as a member institution and to the deposit insurance provided by the Corporation, including displays of the membership sign, brochure and badge.

(3) When a member institution ceases to use a location as a place of business, it must remove from the location all references to its status as a member institution and to the deposit insurance provided by the Corporation, including displays of the membership sign, brochure and badge.

(4) When a member institution is required to display or elects to display a membership sign or badge in digital form, changes may be made to its overall size, but only if the proportions of the sign or badge, as supplied by the Corporation, are maintained and the content is clearly visible and legible.

Representations about Membership
Representations in Advertisements

4 (1) If a member institution makes a representation about its status as a member institution in its advertising, other than by displaying the membership sign or badge, it must use one of the following representations, or a representation in substantially the same words as any of the following representations:

(2) Subject to subsection (3), the representations may appear anywhere in the advertising of a member institution, if the location at which and the manner in which they are displayed do not give the impression that

(3) If the advertising does not deal exclusively with deposits that are eligible to be insured by the Corporation, the member institution must not make any of the representations referred to in subsection (1) unless the statement set out in paragraph 9(2)(a) appears in close proximity to the representations respecting the deposits that are not eligible to be insured by the Corporation.

Display of Membership Sign

5 (1) A member institution must prominently display a membership sign supplied by the Corporation

(2) A member institution must display the membership sign in digital form on the home page of its website, either directly, or by way of a single hyperlink that links to a page where information about its status as a member institution is available.

(3) A member institution must ensure that the location at which and the manner in which the membership sign is displayed does not give the impression that

3 Sections 6 to 9.1 of the By-law are replaced by the following:

Display and Provision of Brochure

6 (1) A member institution must prominently display a brochure in physical form, supplied by the Corporation in physical form for that purpose, at each of its places of business and must also make copies of the brochure available there to depositors and all other persons.

(2) A member institution must, as part of the account opening process for a deposit that is eligible to be insured by the Corporation, provide a depositor

(3) The physical and digital form of the brochures referred to in subsections (1) and (2) must contain the following:

(4) For greater certainty, a member institution, or any other person, may make representations about the subject matter of the brochure if the representation is not false, misleading or deceptive.

(5) A member institution must ensure that the location at which and the way in which the brochure is displayed does not give the impression that

Display of Badge

7 (1) Subject to subsections (2), (3) and (5), a member institution must prominently display the digital form of a badge supplied by the Corporation at each of the following locations on its electronic business sites, other than automated teller machines:

(2) A member institution must prominently display the badge supplied by the Corporation in either physical or digital form at each of its automated teller machines at which a person may make deposits.

(3) A member institution that shares the home page for an electronic business site with a person other than a member institution must not display the badge on the home page.

(4) The badge, whether in physical or digital form, must contain, at a minimum, the Corporation’s logo or other identifiers. The badge in digital form must also contain a hyperlink to the contents of the brochure referred to in subsection 6(3), unless the badge is being displayed on an automated teller machine.

(5) A member institution must ensure that the location at which and the way in which the badge is displayed does not give the impression that

Federal Credit Unions: Statement of Transitional Coverage

8 (1) A federal credit union must prepare a statement of transitional coverage that contains the following information which has been verified by the Corporation:

(2) A federal credit union must, beginning on the day on which it becomes a member institution and ending on the day on which the transition period expires,

(3) A federal credit union must, for a period of 180 days after the day on which it becomes a member institution, prominently display, at each of its places of business, a sign that refers depositors and all other persons to the statement of transitional coverage and indicates how they can obtain a copy of that statement.

(4) Subject to subsection (5), a federal credit union must, not earlier than 12 weeks but not later than 4 weeks before the end of the transition period, provide to a depositor in respect of any pre-existing deposit that exceeds $100,000 and is to be repaid on a fixed day, a copy of the statement of transitional coverage or an indication of how they can obtain a copy of that statement.

(5) A federal credit union that has, under subsection (4), provided to a depositor a copy of the statement of transitional coverage in respect of a pre-existing deposit, or given to a depositor an indication of how that copy can be obtained, is not required to provide to the same depositor in respect of any other pre-existing deposit a copy of the statement or an indication of how the copy can be obtained.

Warning Statements for Ineligible Deposits

9 (1) Subject to subsection (2), if a member institution issues an instrument to a person evidencing that the member institution has received or is holding money that constitutes a deposit that is not eligible to be insured by the Corporation, the member institution must include on the face of the instrument a warning statement in substantially the same words as one of the following statements:

(2) If a member institution issues an instrument to a person evidencing that the member institution has received or is holding money that constitutes both a deposit that is eligible to be insured by the Corporation and a deposit that is not eligible to be insured by the Corporation, the member institution must include on the face of the instrument, in the location specified, if any, a warning statement in substantially the same words as one of the following statements:

(3) If a member institution enters into a transaction with a person by means of telecommunications, or by electronic or other means, with respect to an instrument, the member institution must

9.1 (1) If a member institution elects to affix a warning statement to any document relating to a deposit that is not eligible to be insured by the Corporation, the warning must be in substantially the same words as the following:

“Only deposits held in Canadian currency, having a term of five years or less and payable in Canada are eligible to be insured under the Canada Deposit Insurance Corporation Act.”

(2) If a member institution elects to affix a warning statement to any document evidencing that the member institution has received or is holding money that does not constitute a deposit that is eligible to be insured by the Corporation, the statement must be one set out in paragraphs 9(1)(a) to (c).

4 (1) Paragraph 8(1)(a) of the By-law, as enacted by SOR/2006–334, section 8, is replaced by the following:

(2) Section 8 of the By-law, as enacted by SOR/2006–334, section 8, is renumbered as section 11 and that section is repositioned accordingly.

5 Section 9.2 of the By-law is repealed.

6 Section 10 of the By-law and the heading before it are replaced by the following:

Lists of Trade Names and Financial Products

10 A member institution must not, in the course of its deposit-taking activities relating to deposits eligible to be insured by the Corporation, use one of its trade names in its representations about who is a member institution, what constitutes a deposit or what constitutes a deposit that is insured by the Corporation, unless the member institution

7 The By-law is amended by adding the following after section 11:

Statement Regarding Compliance

12 A member institution must state whether or not it is in compliance with this By-law and must submit that statement with the Return of Insured Deposits that it submits under subsection 22(1) of the Act.

Coming into Force

8 (1) Subject to subsection (2), this By-law comes into force on November 1, 2018.

(2) Section 5 comes into force on September 27, 2017.

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