Vol. 145, No. 21 — October 12, 2011

Registration

SOR/2011-183 September 22, 2011

BANK ACT

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

P.C. 2011-931 September 22, 2011

His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to section 416 (see footnote a) of the Bank Act (see footnote b), hereby makes the annexed Regulations Amending the Insurance Business (Banks and Bank Holding Companies) Regulations.

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 in relation to its 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. (1) The portion of section 6 of the Regulations before paragraph (a) is replaced by the following:

6. A bank shall not, in relation to its business in Canada, promote an insurance company, agent or broker unless

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

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

5. (1) The portion of subsection 7(1) of the Regulations before paragraph (a) is replaced by the following:

7. (1) A bank shall not, in relation to its business in Canada, promote an insurance policy of an insurance company, agent or broker, or a service in respect of such a policy, unless

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

1. (i) all the holders of credit or charge cards issued by the bank who regularly receive statements of account or notices of those statements,
2. (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 only 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 March 1, 2012.

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 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 help 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 Regulations ensure that the promotion of insurance products by deposit-taking financial institutions is related to the core business of these institutions. The Regulations 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 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 have been made 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. An amendment has removed the 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 have modernized the current reference to receiving statements of account, by removing the reference to mail.
• The Standing Joint Committee for the Scrutiny of Regulations suggested corrections to the French version of the Insurance Business Regulations to ensure consistency with the English version and better reflect terms used in legislation. These corrections apply to the existing regulation regarding bank business being carried out adjacent to the premises of an insurance company, agent, or broker. Technical amendments were made accordingly.

The amendments described above have been 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 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 Regulations, some deposit-taking financial institutions 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 provide consumers with greater clarity. Consumers continue to have access to a broad choice of insurance products. The Regulations 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. Amendments to the Regulations were made necessary by the evolving use of technology by deposit-taking financial institutions. The Regulations extend the application of this regulatory framework to the web pages of deposit-taking financial institutions.

Compliance by deposit-taking financial institutions will be achieved at a modest transition cost since they will 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

After pre-publication of the Regulations, on February 12, 2011, in Part Ⅰ of the Canada Gazette, comments from 19 stakeholders were received, including banking and insurance industry associations, insurance companies, insurance brokers, independent lawyers, and Canadians.

The majority of submissions expressed general support for the amendments. Stakeholders felt that the wording of the Regulations accurately implements the intent to extend the regulatory regime to web pages of deposit-taking institutions.

Four stakeholders suggested minor edits to ensure the Regulations effectively achieve the stated policy goals. As a result, modifications to the Regulations have been made to ensure greater clarity. Specifically, the term “in relation to its business in Canada” was added to the definitions of a bank, company, and association web page and in the sections relating to promotion, and the word “only” was added to the sections on web promotion.

One stakeholder expressed opposition to the policy intent, advocating that web pages should be treated differently than physical bank branches. No changes were made in relation to that comment, as it does not reflect the policy position of the Government of Canada.

Implementation, enforcement and service standards

The Regulations do not result in significant changes to OSFI’s systems or procedures and OSFI is taking the necessary measures to ensure that it is prepared to enforce the amendments. It is not anticipated that any additional staff will be required as the existing supervisory framework is sufficient to monitor compliance with the 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 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

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

Footnote b
S.C. 1991, c. 46

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