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Vol. 140, No. 36 — September 9, 2006 Civil Remedies (Banks and Bank Holding Companies) RegulationsStatutory authority Bank Act Sponsoring department Department of Finance REGULATORY IMPACT ANALYSIS STATEMENT (This statement is not part of the Regulations.) Civil Remedies (Banks and Bank Holding Companies) Regulations Civil Remedies (Cooperative Credit Associations) Regulations Civil Remedies (Insurance Companies and Insurance Holding Companies) Regulations Civil Remedies (Trust and Loan Companies) Regulations Distributing Bank and Distributing Bank Holding Company Regulations Distributing Company and Distributing Insurance Holding Company Regulations Distributing Cooperative Credit Association Regulations Distributing Trust and Loan Companies Regulations Going-Private Transaction (Banks and Bank Holding Companies) Regulations Going-Private Transaction (Insurance Companies and Insurance Holding Companies) Regulations Going-Private Transaction (Trust and Loan Companies) Regulations Insider Reports (Banks and Bank Holding Companies) Regulations Insider Reports (Cooperative Credit Associations) Regulations Insider Reports (Insurance Companies and Insurance Holding Companies) Regulations Insider Reports (Trust and Loan Companies) Regulations Meetings and Proposals (Banks and Bank Holding Companies) Regulations Meetings and Proposals (Cooperative Credit Associations) Regulations Meetings and Proposals (Insurance Companies and Insurance Holding Companies) Regulations Meetings and Proposals (Trust and Loan Companies) Regulations Prospectus (Banks and Bank Holding Companies) Regulations Prospectus (Cooperative Credit Associations) Regulations Prospectus (Insurance Companies and Insurance Holding Companies) Regulations Prospectus (Trust and Loan Companies) Regulations Description An Act to amend certain Acts in relation to financial institutions, S.C. 2005, c. 54 (Bill C-57) amended the Bank Act, Cooperative Credit Associations Act, Green Shield Canada Act, Insurance Companies Act and Trust and Loan Companies Act and received Royal Assent on November 25, 2005. The new legislation brings the governance standards in the financial institutions statutes up to the standards adopted in 2001 for business corporations in the Canada Business Corporations Act (CBCA) and general cooperatives in the Canada Cooperatives Act. It also updates certain governance standards that are unique to the financial institutions context. As an integrated package, the amendments clarify the roles of directors, enhance the rights of shareholders, modernize governance practices, strengthen the governance elements of the regulatory framework and increase disclosure of information in respect of participating and adjustable life insurance policies. Just as the CBCA reforms served as a reference point for Bill C-57, the Canada Business Corporations Regulations, 2001 also serve as a reference point for proposed regulations made under Bill C-57. One of the key characteristics of the CBCA reforms adopted by Bill C-57 is the movement of technical components such as time elements, content requirements and definitions from the legislation into the regulations. This provides the Government with greater flexibility to adapt to evolving business practices and harmonize with provincial and territorial securities rules. This is also the approach that was followed for the proposed regulations, as adapted to the financial institutions context. For example, some of the proposed regulations that are unique to financial institutions (e.g. prospectus and insider reports) will incorporate by reference provincial rules in order to reduce the burden on financial institutions of complying with duplicative federal and provincial regulatory regimes. On April 28, 2006, the Government outlined its plan to bring Bill C-57 into force in three phases. The phased approach will give financial institutions time to adapt their policies and procedures and allow for the development of regulations and consultation with industry. The first phase brought into force on April 27, 2006, amendments that did not require supporting regulations. Pre-publication of the proposed regulations supporting the civil remedies, distributing financial institutions, going private transaction, insider reports, meetings and proposals and prospectus provisions of the Bill signals the start of the second phase of the coming into force process. These provisions will be brought into force concurrently with the final publication of the proposed regulations. It is expected that another package of regulations will be brought forward for pre-publication by fall 2006. These remaining regulations will support the provisions that will form the third phase of the Bill's coming into force and complete the policy package envisaged by Bill C-57. The 23 proposed regulations in the present package cover the following six topics: Civil Remedies (Banks and Bank Holding Companies) Regulations, Civil Remedies (Cooperative Credit Associations) Regulations, Civil Remedies (Insurance Companies and Insurance Holding Companies) Regulations, Civil Remedies (Trust and Loan Companies) Regulations The proposed regulations define the term "insider" for the purposes of civil remedies provisions. They specify the amount of 10% as the number of shares or votes that an individual must hold to be deemed an "insider" of a financial institution. The definition of "take-over bid" is established by incorporating by reference the relevant provincial and territorial definitions. The proposed regulations also set out the circumstances under which a purchase or sale of a security took place for which the insider is not liable to compensate the seller or purchaser for any loss suffered by them:
Distributing Bank and Distributing Bank Holding Company Regulations, Distributing Cooperative Credit Association Regulations, Distributing Company and Distributing Insurance Holding Company Regulations, Distributing Trust and Loan Companies Regulations The proposed regulations define what constitutes a "distributing" financial institution by referring to the concepts found under provincial securities legislation such as "reporting issuer." A financial institution that is subject to an exemption under provincial securities legislation or to an order of the relevant provincial securities regulator that the financial institution is not a reporting issuer, is also not a "distributing" financial institution for the purposes of the financial institutions statutes. Going-Private Transaction (Banks and Bank Holding Companies) Regulations, Going-Private Transaction (Insurance Companies and Insurance Holding Companies) Regulations, Going-Private Transaction (Trust and Loan Companies) Regulations. The proposed regulations define that a "going-private transaction" occurs in the context of an amalgamation or other transaction where a distributing financial institution becomes a non-distributing financial institution without the consent of the shareholder and without replacing the shareholder's interest with an interest of equivalent value. Insider Reports (Banks and Bank Holding Companies) Regulations, Insider Reports (Cooperative Credit Associations) Regulations, Insider Reports (Insurance Companies and Insurance Holding Companies) Regulations, Insider Reports (Trust and Loan Companies) Regulations The proposed regulations repeal the existing insider reports regulations and incorporate by reference provincial and territorial securities rules relating to insider reporting. They define who is an insider for the purposes of the insider reports provisions of the legislation. They also specify the form and content of an insider report, as well as the procedure for submitting and publishing the insider reports. A person that is exempt from being an insider or from complying with insider reporting requirements under provincial or territorial laws will also be exempt from the requirements under the financial institutions statutes. Meetings and Proposals (Banks and Bank Holding Companies) Regulations, Meetings and Proposals (Cooperative Credit Associations) Regulations, Meetings and Proposals (Insurance Companies and Insurance Holding Companies) Regulations, Meetings and Proposals (Trust and Loan Companies) Regulations The proposed regulations set out the prescribed time periods for setting record dates and providing notice of meetings. They also set out the minimum eligibility requirements for shareholders to submit proposals, the maximum length of proposals and the minimum support thresholds for resubmitting proposals at multiple meetings. Finally, the proposed regulations set out the requirements for conducting an electronic vote at a meeting. Prospectus (Banks and Bank Holding Companies) Regulations, Prospectus (Cooperative Credit Associations) Regulations, Prospectus (Insurance Companies and Insurance Holding Companies) Regulations, Prospectus (Trust and Loan Companies) Regulations The proposed regulations repeal the existing prospectus regulations and incorporate by reference provincial and territorial securities rules relating to prospectus disclosure requirements. They specify the form and content of a prospectus, as well as the procedure for the disclosure of information by prospectus. A person that is exempt from the prospectus requirements under provincial or territorial laws will also be exempt from the requirements under the financial institutions statutes. Alternatives There are no alternatives to the proposed regulations because they are required for the proper functioning of the financial institutions legislation. They prescribe time periods and amounts, establish definitions and set the terms and conditions under which certain actions are required or may be taken. Without these proposed regulations, many of the provisions of Bill C-57 will be incomplete and cannot come into force. Benefits and costs Good corporate governance practices are essential to the effectiveness, competitiveness and safety and soundness of financial institutions. The proposed regulations will ensure that Canadian financial institutions are equipped with the same governance tools that are available to other companies to compete in the global financial marketplace. The proposed regulations will allow shareholders, policyholders and members of associations to benefit from more effective participation in the corporate governance of financial institutions. For example, electronic voting at meetings will facilitate stakeholder participation by allowing them to vote electronically whether they are physically present at the meeting or participating electronically from a distance. The proposed regulations will also allow financial institutions to benefit from reduced regulatory burden, as many of the requirements of the regulations are harmonized with provincial and territorial securities rules. For example, incorporating by reference the provincial and territorial prospectus disclosure requirements will lower compliance costs for financial institutions because a single set of rules will satisfy both federal and provincial/territorial filing requirements. Initially, financial institutions may experience some minor costs as they adjust their policies and procedures to the new standards, but these costs will be offset by reductions in annual compliance costs, as federal requirements incorporate by reference provincial and territorial securities rules that financial institutions and stakeholders must already comply with (e.g. insider reporting and prospectus disclosure requirements). Additionally, the proposed Meetings and Proposals Regulations rebalance some of the interests between shareholders and financial institutions, with some consequences for shareholders. In particular, shareholders who acquire their shares after the record date for voting will no longer be eligible to vote those shares until the following annual meeting. This element of the regulations is needed to eliminate a problem that existed in the pre-Bill C-57 framework of double voting caused by the new owner seeking to vote the shares at a meeting before the financial institutions can cancel the proxies already executed by the previous owner of the transferred shares. As well, the proposed regulations introduce a new minimum shareholding requirement of $2,000—designed to ensure that only shareholders with vested interests are eligible to submit proposals—and a combined 500-word limit on proposals and supporting statements to encourage conciseness. The impact that these requirements may have on shareholder participation is offset by measures that provide them with broader scope to comment on the business and affairs of financial institutions via proposals and new provisions allowing for electronic participation and voting in meetings that are intended to enhance shareholder engagement and participation. Consultation Given that the regulations are a key component of implementing the updated governance standards in Bill C-57 and affect the corporate governance of a wide range of financial institutions, all key industry associations and the Office of the Superintendent of Financial Institutions were consulted. As well, provincial and territorial governments were consulted on those regulations that harmonize federal requirements for financial institutions with provincial and territorial securities rules through incorporation by reference. Some of the comments received were technical in nature. For example, the regulations were revised to reflect comments from certain provincial governments pointing out inaccuracies in cross-references to provincial statutes that are incorporated by reference in the proposed regulations. Other suggested changes went beyond those adopted by the CBCA framework, but did not raise any concerns specific to financial institutions. These suggestions were determined to be inappropriate due to the importance of maintaining consistent corporate governance standards for all federal business corporations and financial institutions. Compliance and enforcement The proposed regulations do not require any new mechanisms to ensure compliance and enforcement of the regulations. As the regulations primarily shift requirements currently in legislation to regulations or harmonize requirements with provincial standards, they do not require new mechanisms to administer the financial institutions framework. Gerry Salembier, Director, Financial Institutions Division, Department of Finance, L'Esplanade Laurier, East Tower, 15th Floor, 140 O'Connor Street, Ottawa, Ontario K1A 0G5, 613-992-1631 (telephone), 613-943-1334 (fax), Salembier.Gerry@fin.gc.ca (email). Notice is hereby given that the Governor in Council, pursuant to subsections 271(1) (see footnote 1), (3) (see footnote 2) and (6) (see footnote 3) and 978(1) (see footnote 4) of the Bank Act (see footnote 5), proposes to make the annexed Civil Remedies (Banks and Bank Holding Companies) Regulations. Interested persons may make representations with respect to the proposed Regulations 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 this notice and be addressed to Mr. Gerry Salembier, Financial Sector Policy Branch, Department of Finance, L'Esplanade Laurier, 15th floor, East Tower, 140 O'Connor Street, Ottawa, Ontario K1A 0G5. Ottawa, August 25, 2006
MARY O'NEILL CIVIL REMEDIES (BANKS AND BANK HOLDING COMPANIES) REGULATIONS INTERPRETATION 1. In these Regulations, "Act" means the Bank Act. CIVIL REMEDIES 2. For the purpose of paragraph 271(1)(d) of the Act, the prescribed percentage of voting rights attached to all of the bank's or bank holding company's outstanding shares is 10%. 3. For the purpose of subsection 271(3) of the Act, "take-over bid" means a take-over bid under any legislation that is set out in column 2 of the schedule. 4. For the purpose of paragraph 271(6)(c) of the Act, the prescribed circumstances are that the insider (a) entered into the purchase or sale of the security as an agent pursuant to a specific unsolicited order to purchase or sell; (b) made the purchase or sale of the security pursuant to participation in an automatic dividend reinvestment plan, share purchase plan or other similar automatic plan that the insider entered into before the acquisition of the confidential information; (c) made the purchase or sale of the security to fulfil a legally binding obligation that the insider entered into before the acquisition of the confidential information; or (d) purchased or sold the security as agent or trustee in the circumstances described in paragraph (b) or (c). COMING INTO FORCE 5. These Regulations come into force on the day on which they are registered.
SCHEDULE TAKE-OVER BID
[36-1-o] S.C. 2005, c. 54, s. 57 S.C. 2005, c. 54, s. 57 S.C. 2005, c. 54, s. 57 S.C. 2005, c. 54, s. 135 S.C. 1991, c. 46 |
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