On June 22, 2023, the Parliament of Canada passed Bill C-47, An Act to implement certain provisions of the budget tabled in Parliament on March 28, 2023, which expands the Office of the Superintendent of Financial Institution’s (Canada) (OSFI’s) mandate to contribute to public confidence in the Canadian financial system (collectively, the Amendments).
In particular, the Amendments will enhance the federal financial regulatory framework to better address security and integrity risks and challenges, particularly those arising from foreign interference and national security threats. These Amendments also aim to improve the overall supervision and monitoring function of OSFI and to provide additional intervention tools to the Minister of Finance (Canada) (the Minister) and OSFI under the Bank Act, the Trust and Loan Companies Act, and the Insurance Companies Act.
The Superintendent of Federally Regulated Financial Institutions (FRFIs) expressed his confidence in the new legislation and its potential to enhance oversight of FRFIs across Canada.
I. Expansion of OSFI’s supervision and monitoring function
The Amendments expand the scope of the Superintendent’s existing duties to examine FRFIs, to expressly include the supervision of FRFIs to determine whether they have adequate policies and procedures to protect themselves against threats to their integrity or security, including foreign interference. As a result, the Superintendent now has the right to access a FRFI’s records and has the authority to require a FRFI, or any of its affiliates, to provide relevant information to satisfy OSFI that the FRFI has adequate policies and procedures in place regarding the protection against threats to integrity or security of their corporation.
In general, OSFI is authorized to order FRFIs to produce documents necessary to monitor them for compliance with applicable statutes. The Amendments now expand these powers to include examination of FRFIs, at least once a year, to determine the adequacy of their respective policies and procedures to protect themselves against threats to their integrity or security, including foreign interference.
In exercising such expanded duties by the Superintendent, the Superintendent cannot access or obtain information from FRFIs unless it is relevant to its regulatory objectives, and information obtained by the Superintendent must be treated by the Superintendent as confidential.
II. Expansion of the Minister’s Control of FRFIs
The Amendments grant the Minister the power to direct OSFI to take control of a FRFI for any reason related to national security.
In addition, if the Minister believes that a shareholder of a FRFI poses a threat to the integrity or security of the financial system in Canada or a threat to national security, the Minister may direct that person and any person controlled by that person to dispose of shares of such FRFI held or beneficially owned by any of the persons that the Minister specifies in an order. The voting rights attached to such shares may be suspended by the Minister until the shares are disposed of.
III. Sharing of information among FINTRAC, OSFI and the Minister
Section 55.1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act allows the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) to disclose information relating to threats to the security of Canada to certain entities. The Amendments now add OSFI to the list of recipients under section 55.1, allowing information relating to threats to the security of Canada to be disclosed to OSFI for the purposes of its oversight of FRFIs.
The Amendments grant the Superintendent and the Minister a broader range of compliance and intervention tools, strengthening their ability to counter emerging threats.
Starting January 1, 2024, FRFIs will be required to develop, maintain and adhere to adequate policies and procedures to protect themselves from threats to their integrity and security, including foreign interference. OSFI will examine each FRFI’s policies and procedures to determine if they are adequate. OSFI will annually report on these examinations to the Minister in a comprehensive manner. FRFIs will need to be prepared to provide OSFI with detailed responses, on an annual basis, in connection with these assessments.
According to OSFI, the proposed changes in oversight compliment OSFI’s existing purpose, which is to contribute to public confidence in the Canadian financial system, and are in line with its 2022-2025 strategic plan and risk appetite statement.
We encourage FRFIs to review and assess, as soon as possible, their current policies and procedures to determine their sufficiency in light of OSFI’s proposed assessments and to seek legal advice where necessary to bring such policies and procedures up to date by the end of 2023. Dentons Canada’s Corporate and Regulatory Insurance Group would be pleased to assist FRFIs with updating their respective policies and procedures. In addition, we recommend that privately held FRFIs fully understand their composition of shareholders, and maintain shareholder registers with detailed information including the residency of each shareholder. FRFIs should also maintain up-to-date records of any individual or corporation with control over the FRFI.
For more information on this topic, please reach out to the authors, Laurie LaPalme, Derek Levinsky, Katie-May O’Donnell and Jesse Collins-Swartz, or any member of Dentons Canada’s Corporate and Regulatory Insurance group.