Canada Deposit Insurance Corporation Eligible Financial Contracts By-law: SOR/2022-55
Canada Gazette, Part II, Volume 156, Number 7
Registration
SOR/2022-55 March 14, 2022
CANADA DEPOSIT INSURANCE CORPORATION ACT
The Board of Directors of the Canada Deposit Insurance Corporation, pursuant to paragraph 11(2)(g) footnote a and subsections 39.15(7.4) footnote b and (7.5)footnote b of the Canada Deposit Insurance Corporation Act footnote c, makes the annexed Canada Deposit Insurance Corporation Eligible Financial Contracts By-law.
Ottawa, March 2, 2022
Canada Deposit Insurance Corporation Eligible Financial Contracts By-law
Definition of Act
1 In this By-law, Act means the Canada Deposit Insurance Corporation Act.
Prescribed class of federal member institutions
2 The class consisting of all federal member institutions is prescribed for the purpose of subsection 39.15(7.4) of the Act.
Prescribed class of eligible financial contracts
3 The class consisting of every eligible financial contract that meets the following conditions and to which a federal member institution is a party is prescribed in respect of that institution for the purpose of subsection 39.15(7.4) of the Act:
- (a) it contains provisions permitting the taking of an action referred to in paragraph 39.15(7)(a), (b) or (f) of the Act by a party other than
- (i) Her Majesty in right of Canada,
- (ii) the government of a foreign country,
- (iii) a central bank,
- (iv) a clearing house, as defined in subsection 39.15(9) of the Act, or
- (v) a central counter-party, as defined in section 2 of the Payment Clearing and Settlement Act;
- (b) it is not governed by Canadian law or at least one of the other parties to it is neither an individual who is resident in Canada nor a Canadian entity as defined in section 2 of the Bank Act; and
- (c) it meets one of the following conditions:
- (i) it is entered into, amended or renewed on or after October 1, 2023 and at least one of the other parties to it is
- (A) a federal member institution or an affiliate of a federal member institution, or
- (B) an institution that has been identified by the Financial Stability Board as a global systemically important bank or an affiliate of an institution that has been so identified,
- (ii) it is entered into, amended or renewed on or after October 1, 2024, or
- (iii) at least one other party to it and the federal member institution are together parties to another contract that is part of a class prescribed by this section.
- (i) it is entered into, amended or renewed on or after October 1, 2023 and at least one of the other parties to it is
Contract provisions
4 Every federal member institution must ensure that all eligible financial contracts that are part of the class prescribed in respect of it by section 3 contain provisions indicating the parties’ agreement to the application of subsections 39.15(7.1) to (7.104) and (7.11) of the Act in relation to the actions that the parties, other than any referred to in subparagraphs 3(a)(i) to (v), may take.
Coming into force
5 This By-law comes into force on the day on which it is registered.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the By-law.)
Background
The Canada Deposit Insurance Corporation Act (the CDIC Act) limits the exercise of certain rights (stay provisions) that particular counterparties to an eligible financial contract (EFC) may have against a federal member institution of the Canada Deposit Insurance Corporation (CDIC) when the Governor in Council makes an order for the resolution of that federal member institution.
These stay provisions for EFCs play an important role in addressing the risk of a large-scale termination of a federal member institution’s EFCs. However, these provisions may not be effective for EFCs governed by foreign law or in respect of a counterparty situated outside of Canada. The Financial Stability Board (FSB) identified as a risk that foreign courts enforcing an EFC under their domestic law may not recognize a restriction or temporary stay on the exercise of rights imposed under the resolution authority’s domestic law or may not do so in a timely manner. The uncertainty with regard to the enforceability of the stay provisions in the CDIC Act against EFCs subject to foreign law poses a risk to an orderly resolution.
To address this, the FSB issued guidance in 2015 highlighting the benefits of contractual and regulatory measures to ensure foreign EFCs are not terminated on entry of a financial institution into resolution. A number of G20 countries have since then established, or have committed to establishing, rules and regulations to address and implement cross-border enforceability of stay provisions for EFCs.
In keeping with this international approach, the CDIC Act was amended by Budget Implementation Act, 2021, No. 1, Part 4, Division 1, to give the CDIC Board of Directors a by-law making authority to prescribe the manner in which federal member institutions are to ensure that the stay provisions apply to any EFC to which it is a party.
Objective
The Canada Deposit Insurance Corporation Eligible Financial Contracts By-law prescribes which federal member institutions and EFCs are subject to the requirements specified in the By-law. It also prescribes the manner in which the EFCs are to be amended to include the required provisions and provides a significant transition period.
Description
The following table provides more details about the By-law.
| By-law section | Explanation |
|---|---|
| 1 | Provides a definition for the term "Act" |
| 2 | Prescribes that all federal member institutions are subject to this By-law |
| 3 | Prescribes which eligible financial contracts (EFCs) are subject to this By-law. Paragraph (a) prescribes those EFCs that contain provisions allowing certain actions to be taken by a party other than certain exempt parties. Paragraph (b) excludes those EFCs that are both governed by Canadian law and the counterparty to which is either an individual resident in Canada or a Canadian entity. Paragraph (c) sets out the date after which an EFC is subject to the By-law, depending on the type of party to the EFC |
| 4 | Prescribes the additional content that EFCs that are subject to section 3 must have |
| 5 | Prescribes the coming-into-force date of the By-law |
One-for-one rule
The one-for-one rule does not apply to this By-law.
Small business lens
The small business lens does not apply to this By-law.
Alternatives
There are no available alternatives. It must be done by way of a by-law.
Consultation
CDIC consulted with industry participants and other stakeholders over a 12-week period in 2019. Stakeholder input, where appropriate, was incorporated into the By-law. Further consultation was sought through prepublication in the Canada Gazette, Part I. Three submissions were received from industry associations, all requesting an implementation date of October 1, 2025, for EFCs with non-dealer counterparties. The By-law does not require the amendment of EFCs before October 1, 2023, or October 1, 2024 (as applicable); rather, it requires amendment of all EFCs with an existing counterparty if the CDIC member institution enters into, amends or renews an EFC with that counterparty on or after the applicable date. As a result, the implementation dates set out in the By-law provide flexibility for CDIC member institutions to include the required provisions in their EFCs with non-dealer counterparties. Accordingly, the By-law does not provide further time for EFCs with non-dealer counterparties.
Rationale
The By-law prescribes the manner in which federal member institutions are to ensure that the stay provisions in the CDIC Act apply to any EFC to which the federal member institution is a party. This By-law is necessary in order to give effect to the amendments to the CDIC Act that were made by the Budget Implementation Act, 2021, No. 1, Part 4, Division 1, to assist in an orderly resolution of a federal member institution.
Implementation, compliance and enforcement, and service standards
The By-law will come into effect the day it is registered. Depending on the counterparty, EFCs will become subject to this By-law on either October 1, 2023, or October 1, 2024. There are no compliance or enforcement issues.
Contact
Mueed Peerbhoy
Senior Legal Counsel
Canada Deposit Insurance Corporation
50 O’Connor Street, 17th Floor
Ottawa, Ontario
K1P 6L2
Telephone: 343‑572‑9516
Email: mpeerbhoy@cdic.ca