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Notice

Vol. 140, No. 40 — October 7, 2006

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.)

Description

The Board of Directors of the Canada Deposit Insurance Corporation ("CDIC") proposes to make the By-law Amending the Canada Deposit Insurance Corporation Deposit Insurance Information By-law (the "Amending By-law") pursuant to paragraph 11(2)(f) of the Canada Deposit Insurance Corporation Act (the "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 Canada Deposit Insurance Corporation Deposit Insurance Information By-law (the "original By-law") was made on December 4, 1996, and came into full force on March 1, 1998. It was subsequently amended in September of 1999 and October of 2001.

CDIC regularly reviews its by-laws to ensure that they are up to date. In addition, the review of the original By-law focused on whether it continued to allow effective and accurate delivery of information on deposit insurance to the public and did not impose undue regulatory burden on member institutions. Generally, the original By-law addresses what representations can be made about what is, or is not, a deposit eligible for deposit insurance and who is a member institution, with an overriding ban on misleading information. It permits member institutions to provide limited information to depositors about CDIC and CDIC insurance coverage; regulates the use by member institutions of the words "Member of Canada Deposit Insurance Corporation" and the use of the CDIC membership sign; in specific circumstances, requires members to disclose when a deposit is not insured by CDIC (negative stamping); and requires member institutions to maintain deposit registers that include the text of the CDIC information brochure Protecting Your Deposits at each of their places of business or points of service and to make them available to clients on request.

The more significant changes proposed by the Amending By-law are the elimination of the requirement that members maintain and prominently display a deposit register and confirm product eligibility through the CDIC clearance process; increased flexibility of language in statements by members; continuance of the requirement to negatively stamp but with more flexibility in language; requiring CDIC members, their subsidiaries or affiliates to state on money-market mutual fund sales communications that they are not insured by CDIC; requiring members to display on, or maintain a hyperlink to, their CDIC membership sign and brochure on their Web sites; and requiring that members annually deliver to CDIC a list of their eligible deposit products.

Every section of the original By-law is affected by the Amending By-law. Set out below is a detailed description of the changes prefaced by the word "Technical" or "Substantive" depending on the nature of the change:

Amending By-law Section	Original By-law Section	Description of Change
1	1	Technical: Reference to the acronym "CDIC" needs to be defined.
2	2	Technical: The original By-law prohibits false or deceptive representations. Concern that some misleading statements were not necessarily false or deceptive. Therefore, "misleading" is being included.
3	3	Technical: Reference to other sections needed to be changed. Minor grammatical changes made.
4	4 and 8(2)	Substantive: new section 3.1 [derived from original subsection 8(2)] and replacement of section 4. Section 3.1: Members may now initiate discussions, or make written representations, about deposit insurance without first being asked for the information by a depositor. Member institutions continue to be limited as to the subject matter of any representations they may make about deposit insurance to those matters appearing in the CDIC information brochure. Section 4: This section deals with representations about the status of an institution as a member of CDIC. Membership status statements may only be made in advertising if made in accordance with this section. More flexibility in the permitted statement as well as more flexibility as to the location of the membership status statement in relation to the full name of the member institution is being provided. Membership statements may be made in advertising that also references a non-member subject to some constraints.
5(1)	5(1) and 5(2) and Schedule I	Substantive: Schedule I to the original By-law depicted the CDIC membership sign to be displayed at member institutions' places of business. For CDIC to change the content of the sign, an amendment of the By-law is necessary. The new subsections 5(1) and 5(2) describe what the sign will look like and what minimum information must be on the sign, but no graphic is included as a schedule. This way, should CDIC choose to reflect more information, or amend the content of the information such as new contact information, there is no need to amend the By-law. CDIC will continue to provide the sign to the members. If CDIC alters the sign, members are not required to replace existing signage. Subsection 5(2.1) permits, but does not require, the sign to be displayed at points of service in addition to places of business.
5(2)	New	Technical: Subsection 5(4) requires members to remove CDIC signage when vacating premises.
6	6, 7 and 8 and Schedule II	Substantive: These changes eliminate the deposit register and include deposit information requirements on Web sites. Section 6: Rather than prescribing the exact language of the CDIC information brochure in a Schedule, the new section 6 stipulates that CDIC will provide a brochure containing, at a minimum, the information listed. This eliminates the need to make a by-law amendment each time CDIC changes its information brochure. Section 7: The old section 7 imposed the requirement to maintain an up-to-date deposit register (list of an institution's eligible deposit products), prominently display it together with the CDIC information brochure at places of business and points of service, and deliver it to depositors on request. Under the new section 7, only the CDIC information brochure must be displayed and made available. Section 7.1: Web sites of member institutions are a primary source of information for the depositing public and for this reason CDIC is including a requirement that member institutions, if they have a Web site or share a site, display directly or through hyperlink, at least once on the site, both the CDIC membership sign and the CDIC information brochure. The options for disclosure are either directly on the home page of the member institution or at a location on the Web site where eligible deposit products are advertised, or there can be a link to another location that holds the membership sign and brochure. Section 8: With the elimination of the deposit register, CDIC needs a source of information about the deposit products of its member institutions. The new section 8 requires members to file a list of their eligible deposit products annually with CDIC. There is no obligation to have the list available for employees or customers.
7	9(1) and 9(2)	Substantive: Amendments provide more flexibility in the language of required negative indications of insurability (negative stamp). Subsection 9(1): The section was redrafted to incorporate the definition of "instrument" directly into the subsection. This subsection now stipulates that the negative stamp be in substantially the same language as that set out in the subsection. This subsection addresses the situation where the instrument only references uninsured product. A number of variations in the wording are provided. Members may continue to use the statements currently in use. Subsection 9(2): This subsection addresses the situations where both insurable and uninsured deposits are referenced on the same instrument. The subsection provides for various negative stamps that can be used depending on the situation. Members may continue to use the statements currently in use.
8	9.1 and new 9.2	Substantive: These sections include minor changes to old section 9.1 and introduces a new section 9.2 that requires members to negatively stamp money market mutual fund sales communications. Section 9.1: eliminates reference to the deposit register and permits additional statements on any documents (other than instruments) that can be used in referencing uninsured deposits. Subsection 9.2(1) introduces definitions of advertisement and sales communication that mirror those contained in National Instrument 81-102 Mutual Funds issued by the Canadian Securities Administrators. Subsection 9.2(2) imposes the requirement that member institutions include a negative indication of insurability by CDIC in their sales communications about money market mutual funds. This mirrors the requirement contained in the above-noted National Instrument that has been adopted as a regulation under the securities legislation of most provinces and territories. Including the requirement in the By-law assures its application in all provinces and territories.
9	Schedules I and II	Technical: This section repeals the two schedules to the By-law.
10		The Amending By-law will come into force on registration.

Alternatives

There are no available alternatives. The CDIC Act specifically provides that the Board of Directors may make by-laws respecting representations by member institutions and other persons about who is a member institution and what constitutes an insured deposit.

Benefits and costs

The elimination of the requirements relating to the maintenance and delivery of the deposit register reduces burden on members. CDIC research has supported its elimination in that depositors did not find the tool useful in informing them about deposit insurance coverage. The Amending By-law provides more options for member institutions in the types of statements they may make about deposit insurance.

The Amending By-law would impose new requirements on member institutions, while eliminating the more burdensome requirements related to the deposit register. With respect to the requirement to annually deliver a list of deposit products to CDIC, this would impose minimal cost to member institutions. CDIC has been advised through consultation that many, if not all, member institutions already maintain such a list internally. With respect to the requirement to include a negative indication of insurability in sales communications relating to mutual funds, institutions already do this as a result of the imposition of National Instrument 81-102 by most provinces. The requirement to include references to deposit insurance information on member Web sites may give rise to an initial cost, but once in place, there is little, if any, ongoing maintenance required. In the circumstances, the new requirements will impose little, if any, burden on members.

In removing the actual text of the CDIC information brochure and signage from the By-law, CDIC is better able to easily update the text without the necessity of amending the By-law.

Consultation

CDIC began a review of the By-law by publicly issuing in February of 2003 a consultation paper to which comments were requested. Comments were received from numerous associations and agencies as well as numerous member institutions. Further research was undertaken and a second paper was issued in March of 2006 including a first draft of an amending by-law that took into consideration both the comments received in February of 2003, as well as the research undertaken. Comments were once again received from numerous associations and agencies, as well as a number of member institutions. This pre-publication is the final phase of consultation.

Compliance and enforcement

There are no compliance or enforcement issues.

Contact

Sandra Chisholm, Director, Insurance, Canada Deposit Insurance Corporation, 50 O'Connor Street, 17th Floor, Ottawa, Ontario K1P 5W5, 613-943-1976 (telephone), 613-992-8219 (fax), schisholm@cdic.ca (email).

PROPOSED REGULATORY TEXT

Notice is hereby 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, proposes to make the annexed By-law Amending the Canada Deposit Insurance Corporation Deposit Insurance Information By-law.

Interested persons may make representations with respect to the proposed By-law within 45 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 Sandra Chisholm, Director, Insurance, Canada Deposit Insurance Corporation, 50 O'Connor Street, 17th Floor, Ottawa, Ontario K1P 5W5 (e-mail: schisholm@cdic.ca).

Ottawa, September 28, 2006

GUY L. SAINT-PIERRE
President and Chief Executive Officer
Canada Deposit Insurance Corporation

BY-LAW AMENDING THE CANADA DEPOSIT INSURANCE CORPORATION DEPOSIT INSURANCE INFORMATION BY-LAW

AMENDMENTS

1. Section 1 of the Canada Deposit Insurance Corporation Deposit Insurance Information By-law (see footnote 1) is amended by adding the following in alphabetical order:

"CDIC" means the Canada Deposit Insurance Corporation. (SADC)

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

2. No person shall make any false, misleading or deceptive representation with respect to

3. Subsection 3(1) of the By-law is 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 shall be made in accordance with sections 3.1 to 9.2.

4. Section 4 of the By-law is replaced by the following:

3.1 A member institution may make representations with respect to anything contained in the brochure referred to in section 6.

4. (1) A member institution may, in its advertising, make any of the following representations, or representations in substantially the same words as any of the following representations, with respect to its status as a member institution:

(a) "Member of the Canada Deposit Insurance Corporation" (or "A Canada Deposit Insurance Corporation member");

(b) "Member of CDIC" (or "A CDIC member");

(d) "(name of the member institution) is a member of CDIC".

(2) The representations referred to in subsection (1) may appear

(a) anywhere in advertising that deals exclusively with

(i) the member institution, without mentioning any deposit or other financial product, or

(ii) deposits insured by the Corporation; and

(b) immediately following, or in close proximity to, the name of the member institution in advertising that

(i) deals exclusively with deposits insured by the Corporation and refers to both the member institution and a person other than a member institution, using their name or a brand name or other identifier, or

(ii) does not deal exclusively with deposits insured by the Corporation, if the statement set out in subsection 9.1(1) appears in close proximity to the representations respecting the deposits that are not insured by the Corporation.

5. (1) Subsections 5(1) and (2) of the By-law are replaced by the following:

5. (1) A member institution shall display a membership sign provided by the Corporation prominently at each entrance to each of its places of business in such a manner that the sign is clearly visible during business hours.

(2) The membership sign, representing a stylized Canadian flag, must contain, at a minimum, the name of the Corporation, contact information for the Corporation and the name of the member institution or member institutions doing business at the location where the sign is to be displayed.

(2.1) A member institution may display a membership sign at any of its points of service.

(2) Section 5 of the By-law is amended by adding the following after subsection (3):

(4) When a member institution vacates a place of business or point of service, it shall remove all membership signs from the vacated premises.

6. Sections 6 to 8 of the By-law are replaced by the following:

6. The Corporation shall supply to each member institution a copy of a brochure that includes the following:

(a) general information about the Corporation;

(b) contact information for the Corporation;

(d) information as to what constitutes a deposit that is insured by the Corporation;

(e) information as to what constitutes a deposit that is not insured by the Corporation;

(f) the maximum amount of deposit insurance coverage provided by the Corporation; and

(g) information as to what a depositor needs to know when the Corporation is obliged to make an insurance payment.

7. A member institution shall display the brochure prominently at each of its places of business and points of service and shall make copies of the brochure available to depositors or any other persons.

7.1 (1) Subject to subsection (3), a member institution that has its own web site or shares a web site with another member institution shall display deposit insurance information, consisting of at least the membership sign referred to in subsection 5(2) and the brochure referred to in section 6, provided by the Corporation in electronic form in both instances, on that web site, in at least one location

(a) on the home page;

(b) where there are representations respecting deposits that are insured by the Corporation; or

(c) on another web page, to which a hyperlink is provided at a location referred to in paragraph (a) or (b) that describes that page as the location where information about deposit insurance is available.

(2) Subject to subsection (3), a member institution that shares a web site with a person other than a member institution shall display deposit insurance information, consisting of at least the membership sign referred to in subsection 5(2) and the brochure referred to in section 6, provided by the Corporation in electronic form in both instances, on that web site, in at least one location

(a) where there are representations respecting deposits that are insured by the Corporation; or

(b) on another web page, to which a hyperlink is provided at the location referred to in paragraph (a) that describes that page as the location where information about deposit insurance is available.

(3) When the membership sign is displayed by a member institution in accordance with subsection (1) or (2), changes may be made to its overall sizing for the purpose of the electronic display but only if the proportions of the sign, as provided by the Corporation, are maintained.

8. (1) A member institution shall prepare and maintain an up-to-date list of each type of instrument evidencing that the member institution has received or is holding money from or on behalf of a person

(a) that constitutes a deposit that is insured by the Corporation;

(b) that is or is to be set out in the member institution's Return of Insured Deposits; and

(2) The list shall be

(a) in printed form; or

(b) entered or recorded by any system of mechanical or electronic data processing or any other information storage device that is capable of reproducing any required information in intelligible written form within a reasonable time.

(3) A member institution shall provide a copy of the list to the Corporation with its Return of Insured Deposits.

7. Subsections 9(1) and (2) of the By-law are replaced by the following:

9. (1) A member institution shall not issue an instrument, evidencing that the member institution has received or is holding money that does not constitute a deposit that is insured by the Corporation and in respect of which the Corporation does not collect a premium in accordance with section 21 of the Act, to any person in writing or by electronic or other means, unless the instrument bears a warning statement on its face in substantially the same words as one of the following statements:

(a) "Not insured by CDIC";

(b) "Not insured by the Canada Deposit Insurance Corporation"; or

(c) "The deposit evidenced by this instrument does not constitute a deposit that is insured under the Canada Deposit Insurance Corporation Act.".

(2) A member institution shall not issue an instrument, that, in addition to the facts referred to in subsection (1), also evidences that the member institution has received or is holding money that constitutes a deposit that is insured by the Corporation and in respect of which the Corporation collects a premium in accordance with section 21 of the Act, to any person in writing or by electronic or other means, unless the instrument bears a warning statement on its face in substantially the same words as one of the following statements in the location specified, if any:

(a) "Only deposits held in Canadian currency, having a term of five years or less and payable in Canada are insurable under the Canada Deposit Insurance Corporation Act.";

(b) "The following deposits evidenced by this instrument do not constitute deposits that are insured under the Canada Deposit Insurance Corporation Act:" before the list of deposit products that are not insured by the Corporation;

(d) "Not insured by the Canada Deposit Insurance Corporation" beside the reference to each deposit that is not insured by the Corporation; or

(e) "Not insured by CDIC" in a footnote the reference mark for which is located beside the reference to each deposit that is not insured by the Corporation.

8. Section 9.1 of the By-law is replaced by the following:

9.1 (1) A member institution may affix to any document relating to a deposit that is not insured by the Corporation a statement 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 insurable under the Canada Deposit Insurance Corporation Act."

(2) A member institution may affix any of the statements set out in paragraphs 9(1)(a) to (c) to any document evidencing that the member institution has received or is holding money that does not constitute a deposit that is insured by the Corporation.

9.2 (1) The following definitions apply in this section.

"advertisement" means a sales communication in written form that is published in or designed for use on a public medium, other than radio or television. (texte publicitaire)

"sales communication" means a communication, relating to a mutual fund, that is made to any person in order to induce them to purchase securities of the mutual fund and that is not contained in any of the following documents of the mutual fund:

(a) a preliminary prospectus or a pro forma prospectus;

(b) a simplified prospectus or a simplified pro forma prospectus;

(d) any financial statements, including the notes to those financial statements and the auditor's report on those financial statements;

(e) a trade confirmation; or

(f) a statement of account. (communication à des fins de vente)

"subsidiary" has the same meaning as in section 2 of the Bank Act. (filiale)

(2) A member institution shall include in its advertisements about money market mutual funds, or have included in the advertisements of any of its subsidiaries or affiliates about money market mutual funds, a warning statement in substantially the same words as the following:

"Mutual fund securities are not covered by the Canada Deposit Insurance Corporation."

9. Schedules I and II to the By-law are repealed.

COMING INTO FORCE

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

[40-1-o]

Footnote a

S.C. 1992, c. 26, s. 4

Footnote 1

SOR/96-542

NOTICE:
The format of the electronic version of this issue of the Canada Gazette was modified in order to be compatible with hypertext language (HTML). Its content is very similar except for the footnotes, the symbols and the tables.


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