Ottawa, April 28, 2006
2006-011
Government Announces the Modernization of Governance Legislation for
Financial Institutions
Related document:
Minister of Finance Jim Flaherty announced that legislation to modernize
the governance standards for banks, insurance companies and other financial
institutions will begin to take effect.
"The financial services sector is one of the key foundations of a
modern economy," Minister Flaherty said. "Canadian financial
institutions need to be equipped with the same governance tools that are
available to other companies to compete in the global financial
marketplace."
Formally known as An Act to amend certain Acts in relation to financial
institutions (Bill C-57), this legislation received Royal Assent on
November 25, 2005. The Government will bring it into application in three
phases, commencing today. This phased approach will give financial
institutions time to adapt their policies and procedures, and allow for the
development of regulations and consultations with the industry.
This legislation will facilitate such things as electronic communications
and electronic participation in shareholder meetings, and would harmonize
rules for insider reporting and prospectuses with the various provincial
securities rules.
A backgrounder on this legislation is attached.
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An Act to amend certain Acts in relation to financial institutions
On November 25, 2005, An Act to amend certain Acts in relation to
financial institutions (Bill C-57) received Royal Assent.
Bill C-57 amends sections of the Bank Act, Insurance Companies Act, Trust
and Loan Companies Act, Cooperative Credit Associations Act and Green Shield
Canada Act.
Measures fall into five categories:
- Clarifying the roles of directors.
- Enhancing the rights of shareholders.
- Modernizing governance practices.
- Strengthening the governance elements of the regulatory framework.
- Increasing disclosure of information in respect of participating and
adjustable life insurance policies.
The first phase of the legislation comes into force on April 27, 2006.
Subsequent phases will be completed by fall 2006.
The first phase will bring into force a number of technical changes. As
well, the amendments will:
- Clearly articulate a "due diligence" defence, a right
already extended to directors of other corporations. A due diligence
defence encourages directors to take proactive measures to fulfill their
responsibilities with the confidence that reasonable defences are
available in the event of challenges.
- Expand the eligibility of medium-sized insurers and trust and loan
companies to apply for an exemption from the requirement to float 35 per
cent of their voting shares on a stock exchange. This would bring the
rules into line with those that apply to banks, which are now eligible
for the exemption.
In the subsequent phases, the amendments will:
- Clarify the roles of directors: The financial institution statutes set
out the standards, qualifications and duties expected of directors of
financial institutions. Bill C-57 clarifies the role of directors in
carrying out their important functions, for example, by clarifying the
conflict of interest rules.
- Modernize governance practices: The new legislation facilitates
electronic communication with shareholders, participating policyholders,
consumers and the regulator, adds a going-private framework to the
federal statutes, and sets out authority for insider reporting rules to
be harmonized with the rules applied by provincial regulatory
authorities.
- Enhance the rights of shareholders: The financial institution statutes
set out the rights of shareholders to participate in the major decisions
of a financial institution in which they have an interest. Bill C-57
enhances the ability of shareholders to exercise their rights by, for
example, permitting electronic participation in meetings and allowing
shareholders greater freedom to communicate without triggering the proxy
rules.
- Increase disclosure of information in respect of participating and
adjustable life insurance policies: The policyholder governance
framework in the Insurance Companies Act reflects the unique interests
and role of participating policyholders in the corporate governance of
insurance companies.
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