Canada Gazette, Part I, Volume 157, Number 18: Form of Proxy (Banks and Bank Holding Companies) Regulations, 2023
May 6, 2023
Statutory authority
Bank Act
Sponsoring department
Department of Finance
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
Issues
The Form of Proxy (Banks and Bank Holding Companies) Regulations (the Regulations) reference parts of the Canada Business Corporations Regulations, 2001 (CBCR) that have been repealed. The CBCR now incorporate by reference National Instrument 51-102 (Continuous Disclosure Obligations), issued by provincial securities commissions and included in provincial securities legislation. As a result, the Regulations need to be updated to better align with the revised CBCR and provincial requirements.
Background
The Bank Act requires distributing banks (i.e. banks which are reporting issuers under provincial securities laws and are subject to continuous disclosure requirements) and non-distributing banks with greater than 50 shareholders (i.e. banks which are not reporting issuers but have greater than 50 shareholders) to solicit proxies from their shareholders before each shareholder meeting, in accordance with the Regulations. If the bank is not a distributing bank and has fewer than 50 shareholders, it is not subject to this requirement.
A proxy is a legal instrument that allows a shareholder to appoint another person (known as the proxyholder) to attend and act on their behalf at a meeting of shareholders.
Proxy solicitation must be accompanied by a form of proxy and a management proxy circular. The Regulations govern the content of three documents:
- the “form of proxy” that allows shareholders to appoint another person to vote on their behalf at a shareholder meeting;
- the “management proxy circular” that financial institutions must include as part of their mandatory proxy solicitation to shareholders, which outlines the matters upon which shareholders or proxyholders will vote, including, for example, director nominees and shareholder proposals; and
- the “dissident proxy circular” that must accompany proxy solicitations made by any person or group of people other than the management of the financial institution (known in this context as a “dissident”).
The primary objective of the Regulations is to ensure that financial institutions provide shareholders with adequate information about the company to enable them to exercise their voting rights in an informed manner through a proxy rather than in person. The Regulations describe both the information that a form of proxy must contain and the disclosure requirements necessary for the management and dissident circulars.
The current Regulations are modelled on the Canada Business Corporations Regulations, 2001 (CBCR) and directly reference requirements set out in those regulations. Following a series of amendments to the CBCR since 2001, the Regulations now reference parts of the CBCR that have been repealed. Changes to the CBCR in March 2021 have furthered this misalignment. In addition, in 2005, Bill C-57, An Act to amend certain Acts in relation to financial institutions, proposed changes to the definition of “solicitation” in the Bank Act. Specifically, the definition of solicitation does not include certain public announcements made by a shareholder on how and why they intend to vote, nor does it include certain other communications made to shareholders, other than those made by or on behalf of the management of a bank. To support bringing into force those amendments to the Bank Act, the Regulations must be updated to clearly outline these exclusions.
The revised CBCR incorporate by reference requirements of the National Instruments, specifically National Instrument 51-102, Continuous Disclosure Obligations, and Form 51-102F5 (Information Circular) of National Instrument 51-102. The National Instruments were established by the Canadian Securities Administrators (CSA), which is a coordinating body of the provincial and territorial securities commissions. Regulators from each province and territory play a role in the CSA, which is primarily responsible for developing a harmonized approach to securities regulation across the country, particularly through the creation of national instruments. By collaborating on rules, regulations and other programs, the CSA helps avoid duplication of requirements and streamlines the regulatory process for companies seeking to raise investment capital and others working in the investment industry. The use of National Instruments agreed upon by all members of the CSA ensures that the regulatory requirements spelled out in the instrument are identical in all provinces and territories.
In addition to being subject to the rules in the Bank Act, distributing banks are also subject to provincial secur-ities rules for continuous disclosure, including proxy solicitation, as outlined in National Instrument 51-102. Consequently, it is important that federal and provincial rules on proxies are aligned to avoid creating unnecessary conflicting requirements.
Non-distributing banks with greater than 50 shareholders are generally not subject to provincial securities requirements. However, given the size and complexity of their ownership base, it is important that they provide the same high quality of disclosure as distributing banks. The out-of-date nature of the Regulations may make it difficult for these banks to understand and comply with the disclosure requirements.
As a result of the changes to the CBCR that incorporate by reference the National Instruments, the current outdated structure of the Regulations increases regulatory burden for banks. The Standing Joint Committee for the Scrutiny of Regulations (SJCSR) has raised concerns with the misalignment in the Regulations. On February 21, 2019, the Department of Finance appeared at the SJSCR and proposed changing the design of the Regulations to ensure a clear approach to the form and context on proxy documents. The SJCSR requested a timely implementation.
Objective
For distributing banks, the objective of the proposal is to align the requirements in the Regulations with those in the National Instruments, which are incorporated by reference in the CBCR and with which distributing banks must already comply. This will resolve inconsistencies, and reduce the complexity and compliance burden for these banks. This will also ensure that federal and provincial regulatory requirements are aligned, and improve transparency for stakeholders where federal and provincial requirements differ, as outlined in the “Description” section.
For non-distributing banks with greater than 50 shareholders, the objective of the proposal is to maintain a high standard of corporate disclosure while reducing administrative burden.
Description
The proposal would repeal and replace the Regulations with the Form of Proxy (Banks and Bank Holding Companies) Regulations, 2023 (the proposed Regulations). Under this proposal, out-of-date references in the Regulations would be replaced by provisions that directly reference the National Instruments. This would follow a similar approach taken in the revised CBCR.
In making these changes, certain requirements will be added to the proposed Regulations to reflect the approach taken in the revised CBCR and to incorporate the National Instruments. One of these changes concerns the disclosure of information related to executive compensation (Items 8 and 9 in Form 51-102F5) and the other change concerns indebtedness of directors and executive officers (Item 10 in Form 51-102F5). These requirements would not apply to non-distributing banks with greater than 50 shareholders and bank holding companies.
There will also be certain requirements in the current Regulations that will be removed when the National Instruments are incorporated. In particular, certain requirements for a dissident’s proxy circular would be removed, including contract details involving a dissident and details of a dissident partnership.
A small number of requirements in the current Regulations would be retained under this proposal, despite no equivalents in the revised CBCR or in the National Instruments. These include
- disclosure of information related to indemnity;
- disclosure of information related to liability insurance;
- the percentage of votes required to approve any matter at a meeting;
- a signed statement by management that the contents and the sending of the circular have been approved by the directors; and
- for the dissident proxy circular, a signed statement by the dissident that they approve the circular.
Distributing banks and banks with more than 50 shareholders are subject to these requirements under the current Regulations and this information is relevant to the shareholders of these banks.
The proposed Regulations (in sections 4 and 5) also describe the circumstances whereby certain announcements and communications are not considered solicitation. Specifically, a solicitation does not include a public announcement that is made by
- a speech in a public forum; or
- a press release, opinion, statement or advertisement that appears in a medium that is available to the public or that is made by telephone or by electronic communication.
A solicitation also does not include
- a communication concerning the business of the bank made by a shareholder to other shareholders without a form of proxy;
- a communication concerning a dissident’s proxy solicitation made by a shareholder to other shareholders without a form of proxy;
- certain communications made to shareholders as clients of a professional who gives financial, corporate governance or proxy voting advice; or
- communications made by a person who is not seeking the power to act as a proxy for a shareholder.
Regulatory development
Consultation
Consultations on modernizing the corporate governance provisions of the Bank Act (which include the Regulations) occurred as part of the 2019 legislative review. Stakeholders, namely the Canadian Bankers Association, were supportive of updating the Regulations. The Canadian Securities Administrators (CSA), which developed the National Instruments, wrote to Corporations Canada in September 2019, providing their view that incorporation by reference to the National Instruments would be preferable and would reduce the risk of misalignment and confusion if the provincial rules change.
Modern treaty obligations and Indigenous engagement and consultation
An assessment of modern treaty implications did not identify any adverse impacts on potential or established Aboriginal or treaty rights, which are recognized and affirmed in section 35 of the Constitution Act, 1982.
Instrument choice
A regulatory change is required to update the Regulations. The Cabinet Directive on Regulation supports the use of incorporation by reference as an effective tool in achieving regulatory outcomes. Incorporation by reference will also ensure that federal and provincial/territorial rules on form of proxy are aligned, as described in the section “Objective.”
Regulatory analysis
Benefits and costs
The costs of the proposed amendments were assessed and determined to be low. Distributing banks are not expected to bear any costs given that they already follow the National Instruments in practice. It is possible that non-distributing banks with greater than 50 shareholders (of which there are a limited number) that do not already follow the National Instruments may bear a marginal cost. These costs are largely expected to arise from technical or housekeeping changes to the form and content of proxy documents as these banks adjust to the amended Regulations. However, as noted in the section “Description,” the large majority of the proxy solicitation requirements will remain the same following these changes. In addition, non-distributing banks would not be subject to rules where the National Instruments introduce new requirements.
Overall, by promoting alignment between the National Instruments and the Bank Act, and improving regulatory transparency, the benefits of these amendments are expected to outweigh any marginal costs assumed.
The proposal is not expected to result in any incremental costs for consumers, Canadians or the Government.
Small business lens
Analysis under the small business lens concluded that the proposed Regulations will not impact Canadian small businesses. The proposal would not result in cost impacts on small businesses because the proposed Regulations only apply to distributing banks and non-distributing banks with greater than 50 shareholders, none of which are considered to be small businesses. Per the Bank Act, non-distributing banks with fewer than 50 shareholders generally do not need to provide a form of proxy or proxy circular to their shareholders. Non-distributing banks with greater than 50 shareholders would not be subject to requirements in the proposed amendments.
One-for-one rule
The one-for-one rule does not apply as there is no incremental change in the administrative burden on business and no regulatory titles are repealed or introduced.
Regulatory cooperation and alignment
As noted above, the proposal would promote alignment between federal and provincial requirements by updating the Regulations to refer to the National Instruments that are incorporated into a province’s securities legislation.
Strategic environmental assessment
In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.
Gender-based analysis plus
No gender-based analysis plus (GBA+) impacts have been identified for this proposal.
Implementation, compliance and enforcement, and service standards
The proposed Regulations, with the exceptions of sections 4 and 5 related to the definition of solicitation, would come into force on the day on which they are registered.
Sections 4 and 5, related to the definition of solicitation, will come into force on the day on which the related provision in An Act to amend certain Acts in relation to financial institutions comes into force by Order in Council.
The Office of the Superintendent of Financial Institutions (OSFI) regulates and supervises all banks in accordance with the requirements of the Bank Act and associated regulations, including the proposed Form of Proxy (Banks and Bank Holding Companies) Regulations, 2023.
Contact
Barbara Russell
Director
Telephone: 613‑818‑1692
Email: barbara.russell@fin.gc.ca
PROPOSED REGULATORY TEXT
Notice is given that the Governor in Council proposes to make the annexed Form of Proxy (Banks and Bank Holding Companies) Regulations, 2023 under section 156.071footnote a of the Bank Act footnote b.
Interested persons may make representations in writing concerning the proposed Rules within 30 days after the date of publication of this notice. They are strongly encouraged to use the online commenting feature that is available on the Canada Gazette website but if they use email, mail or any other means, the representations should cite the Canada Gazette, Part I, and the date of publication of this notice, and be sent to Stefania Bartucci, Senior Advisor, Financial Institutions Division, Financial Sector Policy Branch, Department of Finance, 90 Elgin St., Ottawa, ON K1A 0G5 (email: Stefania.Bartucci@fin.gc.ca).
Ottawa, April 20, 2023
Wendy Nixon
Assistant Clerk of the Privy Council
Form of Proxy (Banks and Bank Holding Companies) Regulations, 2023
Definitions
Definitions
1 The following definitions apply in these Regulations.
- Act
- means the Bank Act. (Loi)
- dissident’s proxy circular
- means the dissident’s proxy circular referred to in paragraph 156.05(1)(b) of the Act. (circulaire de procuration d’opposant)
- management proxy circular
- means the management proxy circular referred to in paragraph 156.05(1)(a) of the Act. (circulaire de la direction)
Definition of National Instrument 51-102
2 In these Regulations, NI 51-102 means the version of National Instrument 51-102 that applies within a province set out in column 1 of the table to this section in accordance with the instrument set out in column 2.
| Item | Column 1 Province |
Column 2 Instrument |
|---|---|---|
| 1 | Ontario | National Instrument 51-102 Continuous Disclosure Obligations, made a rule of the Ontario Securities Commission and published on April 2, 2004, (2004) 27 OSCB 3439, as amended from time to time |
| 2 | Quebec | Regulation 51-102 respecting Continuous Disclosure Obligations, CQLR, c. V-1.1, r. 24, as amended from time to time |
| 3 | Nova Scotia | National Instrument 51-102 Continuous Disclosure Obligations, made a rule of the Nova Scotia Securities Commission and published in the Nova Scotia Royal Gazette, Part I, on March 15, 2004, as amended from time to time |
| 4 | New Brunswick | National Instrument 51-102 Continuous Disclosure Obligations, made a rule of the Financial and Consumer Services Commission and which came into force on February 19, 2015, as amended from time to time |
| 5 | Manitoba | Manitoba Securities Commission Rule 2003-17, National Instrument 51-102 Continuous Disclosure Obligations, as amended from time to time |
| 6 | British Columbia | National Instrument 51-102 Continuous Disclosure Obligations, B.C. Reg. 110/2004, as amended from time to time |
| 7 | Saskatchewan | National Instrument 51-102 Continuous Disclosure Obligations, set out in Part XXXVI of the Appendix to The Securities Commission (Adoption of National Instruments) Regulations, R.R.S., c. S-42.2, Reg 3, as amended from time to time |
| 8 | Alberta | National Instrument 51-102 Continuous Disclosure Obligations, made a rule of the Alberta Securities Commission and published in the Alberta Gazette, Part 1, on March 15, 2004, as amended from time to time |
Proxies and Proxy Solicitation
Form of Proxy
NI 51-102
3 (1) Subject to subsection 156.02(4) of the Act, a form of proxy must be in a form that complies with the requirements set out in section 9.4 of NI 51-102.
Meaning of certain words
(2) For the purpose of subsection (1), in section 9.4 of NI 51-102
- (a) a reference to “form of proxy” is to be read as a reference to form of proxy as defined in section 2 of the Act; and
- (b) a reference to “securityholder” is to be read as a reference to a shareholder within the meaning of section 7 of the Act.
Proxy Solicitation
Public announcement
4 For the purpose of subparagraph (b)(v) of the definition solicitation in section 156.01 of the Act, a solicitation does not include a public announcement that is made by
- (a) a speech in a public forum; or
- (b) a press release, opinion, statement or advertisement that is provided through a broadcast medium or by a telephonic, electronic or other communication facility or that appears in a newspaper, magazine or other publication that is generally available to the public.
Prescribed circumstances
5 (1) For the purpose of subparagraph (b)(vii) of the definition solicitation in section 156.01 of the Act, the prescribed circumstances are circumstances in which the communication is made to shareholders
- (a) by one or more shareholders and concerns the business and affairs of a bank — including its management or proposals set out in or attached to a management proxy circular — and no form of proxy is sent to the shareholders to whom the communication is made by the shareholder or shareholders making the communication or by a person acting on their behalf;
- (b) by one or more shareholders and concerns the organization of a dissident’s proxy solicitation, and no form of proxy is sent to the shareholders to whom the communication is made by the shareholder or shareholders making the communication or by a person acting on their behalf;
- (c) as clients, by a person who gives financial, corporate governance or proxy voting advice in the ordinary course of business and concerns proxy voting advice if
- (i) the person discloses to the shareholder any significant relationship with the bank and any of its affiliates or with a shareholder who has submitted a proposal under subsection 143(1) of the Act and any material interests the person has in relation to a matter on which advice is given,
- (ii) the person receives any special commission or remuneration for giving the proxy voting advice only from the shareholder or shareholders receiving the advice, and
- (iii) the proxy voting advice is not given on behalf of any person soliciting proxies or on behalf of a nominee for election as a director; or
- (d) by a person who does not seek directly or indirectly, the power to act as proxy for a shareholder.
Exceptions
(2) The circumstances described in paragraph (1)(a) are not prescribed circumstances if the communication is made by
- (a) a shareholder who is an officer or director of the bank, or who serves in a similar capacity, if the communication is financed directly or indirectly by the bank;
- (b) a shareholder who is a nominee or who proposes a nominee for election as a director, if the communication relates to the election of directors;
- (c) a shareholder whose communication is in opposition to an amalgamation, arrangement, reorganization or other transaction recommended or approved by the board of directors of the bank and who is proposing or intends to propose an alternative transaction to which the shareholder or an affiliate or associate of the shareholder is a party;
- (d) a shareholder who, because of a material interest in the subject-matter to be voted on at a shareholders meeting, is likely to receive a benefit from its approval or non-approval, which benefit would not be shared pro rata by all other holders of the same class of shares, unless the benefit arises from the shareholder’s employment with the bank; or
- (e) any person acting on behalf of a shareholder described in any of paragraphs (a) to (d).
Proxy Circulars
Required form
6 (1) Subject to subsection (2) and sections 7 and 8, a management proxy circular and a dissident’s proxy circular must be in the form provided for in Form NI 51-102F5 (Information Circular) of NI 51-102.
Exceptions
(2) The circulars referred to in subsection (1) are not required to include the information referred to in Items 8 to 10 and Item 16 of Form NI 51-102F5 (Information Circular) if they are in respect of a bank or bank holding company that, as the case may be,
- (a) is not a distributing bank or distributing bank holding company described in section 2 of the Distributing Bank and Distributing Bank Holding Company Regulations; or
- (b) is subject to an exemption under subsection 2.4(2) or (3) of the Act.
Meaning of certain words
(3) For the purpose of subsection (1), in Form NI 51-102F5 (Information Circular)
- (a) a reference to “affiliate” is to be read as a reference to affiliate as defined in section 2 of the Act;
- (b) a reference to “subsidiary” is to be read as a reference to subsidiary as defined in section 2 of the Act;
- (c) a reference to “beneficial ownership” is to be read as a reference to beneficial ownership as defined in section 2 of the Act;
- (d) a reference to “company” is to be read as a reference to bank or bank holding company, as the case may be, as defined in section 2 of the Act;
- (e) a reference to “security” is to be read as a reference to security as defined in section 2 of the Act;
- (f) a reference to “control” is to be read as a reference to “control” within the meaning of section 3 of the Act; and
- (g) a reference to “securityholder” is to be read as a reference to a shareholder within the meaning of section 7 of the Act.
Management proxy circular — additional information
7 A management proxy circular must also contain the following information and documents:
- (a) the percentage of votes required for the approval of any matter that is submitted to a vote of shareholders at the meeting;
- (b) a statement, signed by a director or an officer of the bank or bank holding company, indicating that the directors have approved the content and sending of the management proxy circular;
- (c) in respect of a proposal made to the bank or bank holding company under section 143 or 732 of the Act, the day by which it must be received by the bank or bank holding company, as the case may be;
- (d) for every purchase of insurance under section 213 of the Act,
- (i) the amount of the insurance purchased by the bank in respect of the directors and officers, expressed as the total amount purchased or as the amount purchased for directors and officers, respectively,
- (ii) the amount of the insurance premium or, if the insurance purchased was a comprehensive liability policy, the approximate amount of the insurance premium paid in respect of the directors and officers, expressed either as the total amount paid or as the amount paid for directors and officers, respectively,
- (iii) the amount of the insurance premium paid by the directors and officers, expressed either as the total amount paid or as the amount paid by directors and officers, respectively, and
- (iv) a summary of each clause in the insurance policy, such as a co-insurance or deductible clause, that exposes the bank to a liability other than the payment of the insurance premium;
- (e) for every indemnification paid or payable to a person under subsection 212(1) of the Act during the financial year,
- (i) the name and job title of the person indemnified or to be indemnified,
- (ii) the amount paid or payable to the person, and
- (iii) the circumstances that gave rise to the indemnification;
- (f) an explanation of the right to dissent that is provided to a shareholder under section 277 of the Act;
- (g) if the circular includes a comparative annual financial statement referred to in paragraph 308(1)(a) or 840(1)(a) of the Act that has been audited by the auditor of the bank or of the bank holding company, a statement indicating that the financial statement has been audited and that it has been prepared in accordance with the accounting principles referred to in subsection 308(4) or 840(4) of the Act, as the case may be; and
- (h) if the circular includes a comparative annual financial statement referred to in paragraph 308(1)(a) or 840(1)(a) of the Act but that financial statement has not been audited as described in paragraph (g), a report that
- (i) is signed by the chief financial officer of the bank or the directors of the bank holding company, as the case may be, and
- (ii) indicates that the financial statements have not been audited but have been prepared in accordance with the accounting principles referred to in subsection 308(4) or 840(4) of the Act, as the case may be.
Dissident’s proxy circular — additional statement
8 (1) A dissident’s proxy circular must also contain a statement, signed by the dissident or a person they have authorized, indicating that the dissident has approved the content and sending of the circular.
Exception
(2) If the dissident does not have any of the information that is required to be included in a dissident’s proxy circular and the information cannot be readily obtained by them, the circular must contain an explanation of why the information cannot be readily obtained.
Repeal
9 The Form of Proxy (Banks and Bank Holding Companies) Regulations footnote 1 are repealed.
Coming into Force
Registration
10 (1) These Regulations, other than sections 4 and 5, come into force on the day on which they are registered.
S.C. 2005, c. 54
(2) Sections 4 and 5 come into force on the day on which subsection 27(2) of An Act to amend certain Acts in relation to financial institutions, chapter 54 of the Statutes of Canada, 2005, comes into force.
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