Order Fixing the Day After the Day on which this Order is Made as the Day on which Subdivisions A and B of Division 7 of Part 6 of that Act Come into Force: SI/2019-48
Canada Gazette, Part II, Volume 153, Number 14
SI/2019-48 June 26, 2019
BUDGET IMPLEMENTATION ACT, 2018, NO. 1
Order Fixing the Day After the Day on which this Order is Made as the Day on which Subdivisions A and B of Division 7 of Part 6 of that Act Come into Force
P.C. 2019-924 June 22, 2019
Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to sections 239 and 244 of the Budget Implementation Act, 2018, No. 1, chapter 12 of the Statutes of Canada, 2018, fixes the day after the day on which this Order is made as the day on which Subdivisions A and B of Division 7 of Part 6 of that Act come into force, other than section 243, which came into force on assent.
(This note is not part of the Order.)
Pursuant to sections 239 and 244 of the Budget Implementation Act, 2018, No. 1 (BIA1 2018), this Order in Council fixes the day after the day on which this Order is made as the day on which Subdivisions A and B of Division 7 of Part 6 of BIA1 2018 come into force, other than section 243, which came into force on assent.
The purpose of this Order is to establish a coming into force date for amendments to the Payment Clearing and Settlement Act (PCSA) made through BIA1 2018. These legislative amendments implement a framework for the resolution of clearing and settlement systems and clearing houses, referred to as financial market infrastructures (FMIs), and serve to protect information related to oversight of clearing and settlement systems by the Bank of Canada (the Bank).
An FMI is a system that facilitates the clearing, settling or recording of payments, securities, derivatives or other financial transactions among participating entities. FMIs provide the infrastructure through which consumers and firms safely and efficiently purchase goods and services, make financial investments, manage risks and transfer funds.
Certain FMIs are critical to the stability of the Canadian financial system. The Governor of the Bank has designated the most critical FMIs as systemically important. footnote 1 Prominent payment systems are also designated by the Governor for oversight by the Bank if their disruption or failure has the potential to pose risks to Canadian economic activity. footnote 2 If such an FMI were to fail, it could impair the functioning of financial markets, the ability of other financial institutions to carry out their business activities and the ability of Canadians to make or receive timely payments.
The likelihood of an FMI failing is remote, and historically, there have been very few failures of an FMI. Nevertheless, it is possible that a designated FMI may find itself in a situation when neither its risk-management actions nor recovery plan is adequate to allow it to continue operating without disrupting the financial system. Existing bankruptcy procedures are not designed to protect the stability of the financial system when a systemically important institution fails and may not prevent a loss of crucial services to the financial system, amplifying the adverse effect of the FMI’s failure.
In 2008, the G20 initiated a comprehensive program of regulatory reforms to address the underlying causes of the financial crisis. Canada’s financial system performed well during the 2008 global financial crisis and since that time Canada has been an active participant in the G20’s financial sector reform agenda. This includes the G20 commitment to establish effective resolution regimes for systemically important institutions such as banks, insurance companies and FMIs.
The FMI resolution framework put in place through BIA1 2018 amendments to the PCSA and the accompanying regulations take into account international guidance as appropriate in the Canadian context.
Elements of the FMI resolution regime
The legislative amendments that would be brought into force through this Order (the amendments) implement an FMI resolution framework so that the appropriate toolkit is in place to intervene in the unlikely event that a systemically important FMI fails. This includes
- designating the Bank as the resolution authority for designated FMIs in Canada;
- establishing an FMI resolution committee to assist and advise the resolution authority;
- requiring the Bank to develop and maintain resolution plans;
- providing the resolution authority with a suite of powers and tools which would allow it to effectively and efficiently manage a resolution process;
- providing that, at the Governor of the Bank’s request, the Minister of Finance may lend money to the Bank to carry out a resolution;
- allowing the Bank to recover the costs of an FMI resolution;
- requiring the Bank to develop an exit plan as soon as feasible following a resolution; and
- establishing a compensation framework for any person or entity that has been made worse off by the resolution.
In addition to the implementation of an FMI resolution framework, the amendments also provide for the protection of information related to oversight of FMIs by the Bank.
Coming into force
The decision for the amendments to come into force by Order in Council was made to allow for regulations supporting the regime to be developed.
The amendments would implement an FMI resolution framework to maintain the critical services of FMIs, promote financial stability, and reduce potential public exposure to loss. The implementation of an FMI resolution framework is another important step in the fulfillment of Canada’s international commitments and supports greater financial stability in Canada.
The legislative amendments have no funding implications as the cost of administering the new regime will be fully funded by the Bank under existing resources and no new funding is expected to be required.
There are no anticipated compliance costs or administrative costs to businesses. A resolution of an FMI is a low-probability event which will be administered by the Bank as resolution authority.
The Department of Finance Canada and the Bank consulted stakeholders in November 2016 on proposed legislative amendments to the PCSA for the implementation of an FMI resolution regime and to enhance the oversight powers of the Bank. Key issues identified were funding models, transparency of the resolution authority’s powers and tools, and stakeholder participation in the resolution planning process. Input from the consultations in fall 2016 was taken into account when designing the legal framework for the Canadian FMI resolution regime.
Capital Markets Division
Financial Sector Policy Branch
Department of Finance Canada
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