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Bill C-86, entitled “A second Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures” (“Bill C-86”), was introduced in the House of Commons on October 29, 2018, and passed second reading with referral to committee on November 6, 2018. Bill C-86 was referred to the Standing Committee on Finance which proposed certain amendments, and the Standing Senate Committees will submit their final reports by December 4, 2018.

Once Bill C-86 comes into force, it will amend certain sections of the Insurance Companies Act (the “ICA”), as well as amend other financial institutions legislation such as the Bank Act and the Trust and Loan Companies Act. Read the text of the latest publication of Bill C-86 here.

If passed, the proposed amendments will, among other things: (i) create new thresholds below which the acquisition of control of, or the acquisition or increase of a substantial investment in, certain entities, including provincially incorporated trust, loan or insurance corporations, provincially incorporated cooperative credit societies, securities dealers, financial intermediaries, and specialized financing entities, will not require the approval of the superintendent of financial institutions (the “Superintendent”), (ii) permit minority investments in the new business growth fund, (iii) permit customers to consent electronically to the receipt of electronic documents, and (iv) clarify that disclosure of privileged information to the Superintendent will not constitute a waiver of privilege.

Control thresholds

Under the current version of the ICA, subject to certain exceptions, companies (as such term is defined in the ICA) must obtain the approval of the Superintendent in order to acquire control of, or acquire or increase a substantial investment in, the permitted entities described above.

Bill C-86 proposes to add to the existing exceptions by creating new thresholds for determining control, and the acquisition or increase of a substantial investment without taking control, of the entities described above, under which the Superintendent’s approval would no longer be required. The new thresholds for control would provide an exception for acquisitions where the target entity’s consolidated assets would constitute less than one percent of the acquiring company’s total consolidated assets in the case of an acquiring company with equity of 12 billion dollars or more, and two percent of the acquiring company’s total consolidated assets in the case of any other acquiring company.

The new thresholds for acquisition or increase of a substantial investment would provide an exception for acquisitions where the value of the shares, or ownership interests in, the target entity to be acquired, directly or indirectly, or acquired within the prior 12 months, by the acquiring company or a subsidiary of the company would constitute less than half a percent of the acquiring company’s total consolidated assets in the case of a company with equity of 12 billion dollars or more, and one percent of the acquiring company’s total consolidated assets in the case of any other company.

Business growth fund

Bill C-86 would permit a company, or a fraternal benefit society, and its subsidiaries to invest a maximum of 200 million dollars in the new Canadian Business Growth Fund (GP) Inc., a CBCA company (defined as the “business growth fund” in Bill C-86). The Advisory Council on Economic Growth recommended the creation of a private sector led growth fund in its report titled “Unlocking Innovation to Drive Scale and Growth”. Read the report here. According to the report, the business growth fund will be led and financed by financial institutions and is expected to address the gap in growth financing for small to medium-sized firms through the purchase of minority stakes or unsecured debt for approved growth and expansion projects. The proposed amendments set limits on the amount of ownership companies can acquire in the business growth fund.

Consent may be given electronically

Under the existing language of section 1037 of the ICA, receipt of an electronic notice or document is not valid unless the addressee has consented to receive documents and notices in electronic format. Bill C-86 proposes to add to section 1037 by providing that a customer may give consent electronically to the receipt of documents or notices in electronic form. If passed, we expect that this amendment would make it easier for insurance companies to comply with the consent requirements relating to the transmission of electronic documents.

No waiver of privilege

Although the ICA currently prohibits supervisory information from being used as evidence in any civil proceedings, Bill C-86 would provide greater certainty that disclosure by a company of any information that is subject to privilege would not constitute a waiver of privilege. The proposed amendment would also prohibit the Superintendent from disclosing any privileged information to any person whose functions include the investigation or prosecution of offences under any act of Parliament or of the legislature of a province. Corresponding changes have been made to section 37 of the Office of the Superintendent of Financial Institutions Act.

We will keep you informed on the progress of Bill C-86 and its effect on the ICA.

On September 18, 2018 the Office of the Superintendent of Financial Institutions (OSFI) published the final updated version of its Corporate Governance Guideline (“2018 CG Guideline“). The 2018 CG Guideline is more principles-based and sets out OSFI’s expectations for boards of directors (the “Board”) of federally regulated financial institutions, focusing particularly on Board effectiveness.

The 2018 CG Guideline’s main updates include:

1. providing Boards with more discretion to meet the principles of the guideline, considering their organizations’ size, complexity and risk profile;
2. clarifying the delineation between Board and senior management responsibilities; and
3. consolidating Board duties previously set out in numerous OSFI guidelines and advisories.

OSFI has said it will conduct information seminars for directors and corporate secretaries of federally regulated financial institutions in fall 2018.

Please note that the 2018 CG Guideline does not apply to the Canadian branch operations of foreign financial institutions. However, OSFI plans to review and amend guidelines E-4A Role of the Chief Agent & Record Keeping Requirements and E-4B Role of the Principal Officer & Record Keeping Requirements in the near future.

On November 1^st, the new Breach of Security Safeguards Regulations  (the “Breach Regulations“) under the Personal Information and Protection and Electronic Documents Act (“PIPEDA“) came into force. See the link to the Breach Regulations here.

Under the Breach Regulations, both small and large organizations now have an obligation to:

1. Report breaches of security safeguards involving personal information to the Office of the Privacy Commissioner (the “OPC“) where there is a real risk of significant harm.
2. Notify affected individuals and notify appropriate government organizations.
3. Keep a record of every breach of security safeguards.

The OPC has published guidance related to the Breach Regulations, titled “What you need to know about mandatory reporting of breaches of security safeguards”. See the link here.

Reporting A Breach of Security Safeguards

PIPEDA defines a “breach of security safeguards” as “the loss of, unauthorized access to or unauthorized disclosure of personal information resulting from a breach of an organization’s security safeguards that are referred to in clause 4.7 of Schedule 1 [of PIPEDA] or from a failure to establish those safeguards”. The definition contemplates that even the loss of a USB key or a laptop would constitute a “breach of security safeguards”.

The reporting obligations do not require that an organization report all breaches to the OPC. The reporting obligations apply where the breach involves personal information that is under organization’s control, and when it is reasonable to believe that the breach creates a “real risk of significant harm”.

Determining whether there is a “real risk of significant harm” requires, among other things, an analysis of the sensitivity of the personal information involved and the probability that the personal information will be misused. According to the OPC, “significant harm” includes bodily harm, humiliation, damage to reputation or relationships, loss of employment, business or professional opportunities, financial loss, identity theft, negative effects on the credit record and damage to or loss of property. Neither PIPEDA nor the new Breach Regulations define “sensitivity”. However, Principal 4.3.4 of PIPEDA provides the names and addresses of subscribers to some special-interest magazines as an example of personal information that would likely be considered sensitive.

Under the Breach Regulations, an organization is also responsible for reporting a breach of security safeguards where there is a real risk of significant harm by a third-party service provider. The OPC expects that, in such an event, both the service provider and the organization will submit reports to the OPC.

Organizations may report certain information to the extent that it is available at the time of reporting and an organization may update the report at a later date.

Notifying Affected Individuals and Organizations

The Breach Regulations require that organizations notify affected individuals as soon as feasible in the event of a breach where there is a real risk of significant harm, and that organizations notify affected individuals directly. Depending on the sensitivity of the personal information and the real risk of significant harm, the organization may need to, in some cases, notify affected individuals prior to submitting its report to the OPC.

The Breach Regulations provide that the notification to affected individuals must include information sufficient to allow the affected individuals to understand the significance of the breach and to take any available steps to reduce the risk of harm that may result from the breach.

The Breach Regulations further provide that there are limited circumstances where direct notification may not be required, and an organization may provide indirect notification. Indirect notification may be given in circumstances where direct notification may cause further harm to the individuals, direct notification would cause undue hardship for the organization, or the organization does not have contact information for the affected individual.

In addition to the requirement to notify affected individuals, organizations are required to notify any other government organizations or institutions that the organization believes may be able to reduce the risk of harm to individuals.

Record Keeping

Although the reporting requirements under the Breach Regulations apply to breaches where there is a real risk of significant harm, the record keeping requirements apply to every breach, regardless of the risk of harm. Records of breaches must contain enough information to allow the OPC to confirm compliance with the Breach Regulations and PIPEDA, including an explanation of why, in cases where a breach was not reported, the breach was determined not to pose a real risk of significant harm. Breach records must be kept for two years, or longer as may be required in accordance with applicable law or related internal record-keeping requirements.

On September 28, 2018, the Financial Services Commission of Ontario (FSCO) released its Treating Financial Services Consumers Fairly Guideline.

The Guideline applies to those licensed or registered by FSCO in the insurance, credit union/caisse populaire, loan and trust and mortgage brokering sectors. The purpose of the Guideline is “to ensure there is common understanding between FSCO and its Licensees as to what it means to treat consumers fairly.”

The Guideline contains a list of eight principal expectations, which FSCO says are intended not to be a prescriptive or exhaustive list, but rather to be used as guidance as part of a principles-based approach. The expectations listed by FSCO are:

1. FSCO expects that a core component of a Licensee’s business governance and culture is fair treatment of consumers.

2. FSCO expects Licensees to act with due skill, care and diligence at all times, but especially when dealing with consumers or designing financial services or products for consumers.

3. FSCO expects Licensees to promote financial services and products in a manner that is clear, fair and not misleading or false.

4. FSCO expects Licensees to recommend products that are suitable, taking into account the consumer’s disclosed personal circumstances and financial condition.

5. FSCO expects Licensees to disclose and manage any potential or actual conflicts of interest.

6. FSCO expects Licensees to provide continuing service and keep consumers appropriately informed, through to the point at which all obligations to the financial services consumer have been satisfied, including claims handling or the diligent provision of benefits.

7. FSCO expects Licensees to have policies and procedures in place to handle complaints in a timely and fair manner.

8. FSCO expects Licensees to protect the private information of financial services consumer and inform them of any privacy breach.

The full text of the Guideline can be viewed here.

FSCO has also published a related document to address anticipated questions, which is available here.

Insurance Brokers who own their own book of business and are contemplating moving to a new agency should be aware of a recent order dated April 27, 2018 from the Insurance Council of B.C. (“Council”) in which Council ordered the broker to pay a $2,500 fine as a result of transferring a client list without the express consent of both old and new agencies and of the clients. The client list contained personal information and included client names, policy numbers, and policy effective dates. See the Council’s order here.

In B.C., Council Rule 7(1) provides that licensees “must hold in strict confidence all information acquired in the course of the professional relationship concerning the personal and business affairs of a client” and prohibits licensees from using or disclosing such information without express authorization by the client. In this case, prior to becoming a representative of the agency, the broker had made a verbal agreement with the agency’s nominee that the clients would remain his. After joining the new agency, the broker had also called each client when their policies were up for renewal to advise them of his move to the new agency. However, the broker had not obtained the express consent of his clients to transfer their personal information to the new agency, nor did he obtain the consent of the old and new brokerages to the transfer of the clients’ information, and therefore the broker was in contravention of Council Rule 7(1).

Under Council Notice ICN 17-004 Reminder of Licensee Responsibilities Related to Disclosure or Transfer of Client Information (“Notice 17-004“), if a general insurance agent leaves one agency to represent another, such agent must not have any client information in their possession, and may not transfer client information from the former agency to the new agency without the consent of both agencies and express authority from the client to transfer their personal information.

Although Council Rule 7(1) and Notice 17-004 are only applicable in B.C., brokers in all provinces and territories must comply with the federal Personal Information Protection and Electronic Documents Act (or their province’s substantially similar legislation) which requires individuals to have knowledge of, and consent to, the use and disclosure of their personal information, with certain exceptions for business transactions.

Brokers who work within a corporate agency who intend to own their own books of business are therefore advised to obtain an express consent from each client which permits not only the corporate agency, but also the broker personally, to collect, use and disclose the client’s personal information and permits such information to be transferred to another corporate agency in the event that the broker decides to switch agencies.

On April 12, 2018, Quebec’s insurance regulator, the Autorite des marches financiers (the “AMF”) announced that it had entered into agreements with three separate Canadian-licensed insurers, and had imposed administrative penalties which in the aggregate equal $2,100,000, related to unauthorized sales practices used to offer insurance products to the credit card customers of at least two separate retailers.

Each of the three insurers, The Canada Life Assurance Company, Chubb Life Insurance Company of Canada and The Manufacturers Life Insurance Company, reportedly acknowledged that they did not follow sound business practices in relation to the distribution of the products, and had failed to comply with certain provisions of Quebec’s insurance legislation.

In each case it was reported that the insurers offered the products through employees of telemarketing firms, who were persons not certified by the AMF for this purpose, and that certified persons who were involved did not fulfill their required roles in relation to the distribution of the products in question.

Each of the insurers confirmed that the unauthorized sales practices were no longer being used, and each have committed to notify all policyholders who are still holders of the products concerned, that a certified representative will be available to answer any question related to the products.

Further details are available on the AMF’s website.

The Registered Insurance Brokers of Ontario (RIBO), the self-regulatory organization for insurance brokers in Ontario, has submitted proposed amendments to the Registered Insurance Brokers Act (RIBA) and its regulations, to the Ontario Ministry of Finance (collectively, the “Proposed Amendments”). The Proposed Amendments are intended to demonstrate RIBO’s alignment with the Ontario Government’s stated objective of increasing consumer protection related to financial services in Ontario.

RIBO says that the Proposed Amendments were made with a view to increasing transparency, addressing the provision of insurance advice through diverse digital platforms, and reflecting the increasing importance of consumer protection.

The Proposed Amendments include, among other things:

1. Opening hearings of RIBO’s discipline committee.
2. Enhancing enforcement powers by giving RIBO the ability to levy administrative penalties.
3. Giving RIBO the ability to characterize a broker’s failure to cooperate with RIBO as misconduct.
4. Imposing a duty on principal brokers to report certain suspected acts of misconduct.
5. Bringing fines and penalties that are available to RIBO’s discipline committee up to date.
6. Updating minimum errors & omissions limits.

The Proposed Amendments also include updates to brokers’ continuing education and professional development requirements, which would become effective in 2018. Although no additional hours would be required as part of the amendments to the education and professional development, a new ethical skills category would be created, as well as minimum requirements for technical skills, and a cap on the number of hours allowed for “personal skills”. The amendments related to continuing education are part of RIBO’s broad public protection mandate and are aimed at enhancing broker professionalism.

According to Tracy McLean, President of RIBO, the Proposed Amendments would the most comprehensive yet. In RIBO’s Fall 2017 Bulletin (here: https://www.ribo.com/index.php?option=com_content&view=article&id=39&Itemid=115), Tracy McLean reported that, after a meeting with the Ministry of Finance, RIBO’s Proposed Amendments were well received. The Proposed Amendments have not yet gone to the Legislative Assembly for first reading.

We will keep you updated with respect to the progress of the Proposed Amendments.

Bill 177, The Insurance Act (Saskatchewan) (the “Act”), received Royal Assent on May 14, 2017 and is expected to replace the century-old Saskatchewan Insurance Act in the spring of 2018. According to Justice Minister and Attorney General Gordon Wyant, the new Act will not only modernize insurance law in the province but will also increase consumer protection and help to harmonize insurance legislation in the Western provinces. On June 22, 2017, the government of Saskatchewan released The Insurance Regulations (the “Regulations”) which provide more guidance on how the new Act will affect the insurance industry.

1. Third Party Administrators

Of particular interest in the Act and its Regulations are new rules regarding a class of insurance intermediaries known as third party administrators (“TPA” or “TPAs”). The Regulations define a TPA as:

…a business that, for compensation, carries out activities to administer a contract of insurance on behalf of an insurer, other than solely clerical activities, but does not include a business that is licensed as an insurance agent or managing general agent;

When describing the licensing requirements for insurance intermediaries, Section 5-8 of the Act states:

No business or insurer shall act or offer to act as a third party administrator with respect to a class of insurance unless the business or insurer holds a valid third party administrator’s license for that class of insurance.

Sections 5-11 to 5-14 of the Act describe the process and form of application that is required in order to obtain a license, and detail the circumstances in which the Superintendent of Insurance (the “Superintendent”) may issue a license. Section 5-15(d) lists the categories of TPA’s licenses that may be issued, which include life insurance, accident and sickness insurance, and property and casualty insurance. The Act specifies that a copy of the contract between the TPA and the insurer must be filed along with the application for a TPA’s license, and the Superintendent has the right to require applicants or holders of a TPA license to submit “any other information or material” that the Superintendent requests.

2. Designated Representatives

In addition to setting out a licensing scheme for TPAs, the Act will require every business that is licensed as a TPA for a required class of insurance to assign an individual as a designated representative for that class of insurance. Section 5-20(1) of the Act states that “required class of insurance” means life insurance or property and casualty insurance, and the Regulations add that for the purposes of this section, accident and sickness insurance is included in the meaning of life insurance. According to the Act, the designated representative of a TPA must be someone who:

(a) is licensed in that required class of insurance;

(b) meets the prescribed requirements; […] and

(d) is responsible for receiving notices and other documents on behalf of the…third party administrator pursuant to this Act and for carrying out any other prescribed duties.

For TPAs licensed under the life insurance or accident and sickness insurance classes, the prescribed requirements are that the designated representative must: be an individual; meet the education and experience requirements described in the bylaws of the Life Insurance Council of Saskatchewan for licensed life agents that are able to supervise other life agents; and be recommended by the insurer that has entered into the contract with the TPA. Therefore, these individuals must have successfully completed the Life Licensing Qualifying Program course and examination and have at least three years of experience as a licensed agent or salesperson.

The requirements are similar for TPAs licensed under property and casualty insurance classes, with the difference being that the education and experience requirements that have to be met by designated representatives are described in the bylaws of the General Insurance Council of Saskatchewan for individuals who are able to manage a business as a licensed agent. These individuals need a Level 3 All Classes other than Life Agent license and at least two years of experience as a licensed agent or salesperson.

3. Concerns over TPA Licensing

In a feedback letter to the proposed Act, the Canadian Association of Financial Institutions in Insurance (“CAFII”) recommended that the provisions relating to licensing of TPAs be removed from the Act entirely, since any risks relating to TPAs are already in the hands of heavily regulated entities such as restricted insurance agents or insurers. CAFII also pointed out that the language “any other information or material” in relation to what can be requested by the Superintendent may be too expansive, and additionally expressed some concern over the potential complexity and costs of the licensing requirements. However, as evidenced by the Regulations and newest version of the Act, these recommendations were not followed by the Saskatchewan legislature.

The broad definition of TPA along with the regulatory scheme outlined by the Act indicates that many third parties that previously did not require licensing will now be captured under its provisions. Although this may be viewed by some as a welcome feature in terms of consumer protection, as the Act gives Saskatchewan more tools with which to regulate the insurance industry, the somewhat invasive requirements of the licensing process could potentially be of concern to parties wishing to shield the proprietary and confidential information found in their contracts. Furthermore, the additional costs that are likely to be incurred by TPAs and insurers in order to meet the licensing and designated representative requirements may possibly end up costing consumers in the form of more expensive policies.

The Forfeited Corporate Property Act, 2015 (the “FCPA”) is a new Ontario statute that came in force on December 10, 2016 and made changes to the law regarding forfeited personal and real property following the dissolution of a corporation. As part of such changes, the FCPA imposed certain amendments to the Ontario Business Corporations Act (the “OBCA”) and Ontario Corporations Act that relate to new record-keeping obligations for both, new and existing Ontario corporations. Below, we are focusing on the amendments to the OBCA. These amendments are likely intended to make it easier for the Province of Ontario to locate the assets of dissolved corporations and assist the Province to use or sell any forfeited property.

1. Register of interests in land in Ontario and supporting documents

A new section 140.1 has been added to the OBCA. Subsection 140.1 (1) provides that:
“A corporation shall prepare and maintain at its registered office a register of its ownership interests in land in Ontario.”

The OBCA does not define the term “ownership interest”. However, it has been suggested that the phrase extends to both legal and beneficial interests in land. Such register shall identify each property and show the date the corporation acquired the property and, if applicable, the date the corporation disposed of it.
In addition, corporations are required to keep supporting documents with the property register, such as a copy of any deeds, transfers or similar documents that contain any of the following with respect to each property listed in the register:

1. The municipal address, if any;
2. The registry or land titles division and the property identifier number;
3. The legal description; or
4. The assessment roll number, if any.

The wording of the new section 140.1 suggests that these new requirements do not extend to ownership interests situated outside Ontario and to other Canadian corporations (incorporated federally or in any other Province, except Ontario), even if they hold ownership interests in land in Ontario.

2. Timing of Compliance

The amendments to the OBCA come into force on December 10, 2016 and apply immediately to all corporations that are incorporated or continued under the OBCA on or after such date. Corporations that were in existence before December 10, 2016 should be aware that the same law will apply to them as of December 10, 2018.