Vol. 133, No. 51 — December 18, 1999

Exemption from Deposit Insurance By-law (Prescribed Deposits)

Statutory Authority

Canada Deposit Insurance Corporation Act

Sponsoring Agency

Canada Deposit Insurance Corporation

REGULATORY IMPACT ANALYSIS STATEMENT

Description

Amendments to the Bank Act, the Canada Deposit Insurance Corporation Act ("CDIC Act") and the Canadian Payments Association Act allow banks that accept primarily wholesale deposits ($150,000 or more) to take such deposits without being members of Canada Deposit Insurance Corporation ("to opt out"). These amendments were contained in An Act to amend certain laws relating to financial institutions. Under the amendments, opted out banks are prohibited from taking retail deposits (those under $150,000), subject to a one percent de minimis rule. The relevant provisions of this Act came into force on October 15, 1999.

Section 101 of An Act to amend the Bank Act, the Winding-up and Restructuring Act and other Acts relating to financial institutions and to make consequential amendments to other Acts amends the CDIC Act and authorizes the Board of Directors of the Canada Deposit Insurance Corporation ("CDIC") to make by-laws prescribing deposits which would be excepted from the definition of retail deposits in order to calculate the one percent de minimis rule. It also authorizes CDIC to prescribe terms and conditions with respect to the acceptance of these "prescribed deposits." The relevant provisions of this Act are contained in subsection 26.01(4) of the CDIC Act and came into force on October 15, 1999.

The Exemption from Deposit Insurance By-law (Prescribed Deposits) ["the By-law"] is required to implement policy set out in the legislation to allow certain exceptions to the prohibition on retail deposit-taking applicable to banks that wish to opt out. The By-law sets out the exceptions. The exceptions are limited to deposits from specified classes of depositors that are deemed to be sophisticated. Once the By-law is in force, only prescribed deposits under $150,000 will be excluded from the pool of deposits on which the calculation of the one percent de minimis rule set out in paragraph 26.03(1)(b) of the CDIC Act is based. This is one of the criteria that a bank applying to opt out must meet before authorization to opt out is granted by CDIC.

This By-law parallels proposed regulations under the Bank Act that will allow the same exceptions to the prohibition on the retail deposit-taking by full service foreign bank branches. The By-law and the regulations will impose the same requirements on all banks that will be taking wholesale deposits that will not be covered by CDIC deposit insurance.

Alternatives

Because a By-law is required to implement legislation, no alternatives were considered.

Benefits and Costs

The By-law allows banks that wish to take wholesale deposits without being members of CDIC increased flexibility to retain and serve certain classes of depositors. There are no additional costs associated with the new By-law.

Consultation

The legislative provisions that authorize the Board of Directors of CDIC to make this By-law were included in Bill C-67, as a result of consultation with interested member institutions following the introduction of the Bill. The draft By-law and parallel regulations under the Bank Act were sent to those interested members and other interested stakeholders for comments. Officials from the Department of Finance, the Office of the Superintendent of Financial Institutions and CDIC have met with these parties on several occasions to review the proposed system. Minor technical amendments were made as a result of changes suggested at meetings. Interested parties have indicated their support for the By-law.

Compliance and Enforcement

CDIC will not grant authorization to an applicant to opt out unless it is satisfied that the applicant complies with the requirements of the CDIC Act. The application fee to be paid by each applicant bank will cover the cost of ensuring such compliance.

Contact

Jill Stewart, Director of Insurance, Compliance, Canada Deposit Insurance Corporation, 50 O'Connor Street, 17th Floor, Ottawa, Ontario K1P 5W5, (613) 943-1981 (Telephone), (613) 996-6095 (Facsimile), jstewart@cdic.ca (Electronic mail).

PROPOSED REGULATORY TEXT

Notice is hereby given that the Board of Directors of Canada Deposit Insurance Corporation, pursuant to subsection 26.01(4) of the Canada Deposit Insurance Corporation Act, proposes to make the annexed Canada Deposit Insurance Corporation Exemption from Deposit Insurance By-law (Prescribed Deposits).

Any interested person may make representations concerning the proposed By-law within 30 days after the date of publication of this notice. All such representations must be addressed to Jill Stewart, Director of Insurance, Compliance, Canada Deposit Insurance Corporation, 50 O'Connor Street, 17th Floor, Ottawa, Ontario K1P 5W5, (613) 943-1981 (Telephone), (613) 996-6095 (Facsimile), jstewart@cdic.ca (Electronic mail), and cite the Canada Gazette, Part I, and the date of this notice.

Ottawa, December 6, 1999

J. P. SABOURIN
President and Chief Executive Officer

EXEMPTION FROM DEPOSIT INSURANCE BY-LAW (PRESCRIBED DEPOSITS)

INTERPRETATION

1. The definitions in this section apply in this By-law.

"Act" means the Canada Deposit Insurance Corporation Act. (Loi)

"deposit" has the meaning that would be given to it by the schedule to the Act, for the purposes of deposit insurance, if that schedule were read without reference to subsections 2(2), (5) and (6) of that schedule. (dépôt)

"entity" has the same meaning as in section 2 of the Bank Act. (entité)

"first deposit transaction" means the first deposit transaction, in relation to a prescribed deposit referred to in section 2, between a person and a bank that has made an application under section 26.02 of the Act, whether that transaction took place before or after the application was made. (première opération de dépôt)

PRESCRIBED DEPOSITS

2. For the purposes of subsection 26.01(3) of the Act, a prescribed deposit is a deposit of less than $150,000 that is taken by a bank that has made an application under section 26.02 of that Act from

(a) Her Majesty in right of Canada or in right of a province, an agent of Her Majesty in either of those rights, including a municipal or public body empowered to perform a function of government in Canada, or an entity controlled by Her Majesty in either of those rights;

(b) the government of a foreign country or any political subdivision of that country, an agency of the government of a foreign country or any political subdivision of that country, or an entity that is controlled by the government of a foreign country or any political subdivision of that country;

(c) an international agency of which Canada is a member, including the Inter-American Development Bank, the Asian Development Bank, the Caribbean Development Bank, the European Bank for Reconstruction and Development and any other international regional bank of which Canada is a member, and an international agency of which Canada is a member that is a member of the World Bank Group;

(d) a financial institution as defined in section 2 of the Bank Act;

(e) a pension fund that is maintained in respect of a pension plan registered for income tax purposes and that has total assets under administration of more than $100 million at the time the first deposit transaction is made;

(f) a mutual fund that is regulated under an Act of the legislature of a province or under the laws of a jurisdiction outside Canada and the assets of which are managed by a person that has total assets under their management of more than $10 million at the time the first deposit transaction is made;

(g) an entity that, at the time the first deposit transaction is made, has for the fiscal year immediately preceding that deposit transaction, gross revenues of more than $5 million; or

(h) any other entity, where the deposit facilitates the provision of the following services by the bank to the entity, namely,

COMING INTO FORCE

3. This By-law comes into force on the day on which it is registered.

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Regulations Amending the Licensing and Arbitration Regulations

Statutory Authority

Canada Agricultural Products Act

Sponsoring Agency

Canadian Food Inspection Agency

REGULATORY IMPACT ANALYSIS STATEMENT

Description

The Licensing and Arbitration Regulations are made under the Canada Agricultural Products Act. They promote fair and equitable trading of fruits and vegetables in interprovincial and international trade and reduce the incidence of fraud by establishing trading standards, rules, and a language of commerce by which transactions must be conducted. Subject to some exemptions, every dealer engaged in this business must obtain a produce dealer licence from the Canadian Food Inspection Agency (CFIA). The Act provides for a legislated dispute settlement process in the Board of Arbitration.

These amendments recognize the creation of an industry-run tri-national dispute resolution corporation. This corporation, the Fruit and Vegetable Dispute Resolution Corporation (DRC), was created in response to article 707 of the North American Free Trade Agreement (NAFTA) to serve as a private dispute resolution body for the fresh fruit and vegetable sectors in Canada, Mexico, and the United States The amendments exempt DRC members from the requirements of the Licensing and Arbitration Regulations.

This proposal also responds to a request by the national industry associations — the Canadian Produce Marketing Association (CPMA) and the Canadian Horticultural Council (CHC) — to phase in the responsibilities of the industry-run DRC.

The Government of Canada, through the Canadian Adaptation and Rural Development Fund, provided the CHC and the CPMA $1 million to help the produce industry design and implement an improved dispute resolution system under NAFTA Article 707.

Alternatives

Option 1: Maintain the status quo

The status quo is not the preferred option in view of the shortcomings identified by industry in the current Licensing and Arbitration Program. These are as follows: the inability to deal effectively with the non-payment of invoices between buyers and sellers, the inability of the Board of Arbitration to deal with disputes between buyers and sellers involving elements of contract law, and the inability to extend coverage to dealers engaged in intra-provincial trade.

The Canadian produce industry, represented by the CHC and the CPMA, asserts that the current system does not have sufficient regulatory strength to promote the fair and equitable marketing of produce in Canada.

Option 2: Immediate Deregulation

Although immediate deregulation was identified as an alternative, the industry is not currently in a position to assume full responsibility for the operation of a licensing and arbitration system. A gradual transition would allow the industry time to fully develop an alternative system.

The industry has requested a two-year transition period in which the DRC would become well established before replacing the current government Licensing and Arbitration Program.

Option 3: Indefinitely maintain two separate dispute resolution bodies: the federal Licensing and Arbitration Program and the industry-run DRC

Under this option, dealers could either avail themselves of the services of the industry-run DRC if a dispute was not within the jurisdiction of the Licensing and Arbitration Program, or use the program's Board of Arbitration for disputes within its jurisdiction. However, maintaining both a government-run system and an industry-run system would be cost-prohibitive and would create confusion in the marketplace.

Option 4: Transition from Licensing and Arbitration Program to the industry-run DRC

This option provides for a transition period in which current licence holders can voluntarily migrate to the industry-run DRC while a regulatory basis is maintained. Hence the DRC can develop a dispute resolution system while the services, with which the Canadian industry and trading partners are familiar, are still in place. It is proposed that the DRC replace the Licensing and Arbitration Program at the end of the two-year transition period.

With this option, only those dealers holding CFIA-issued licences would be subject to the requirements of the Licensing and Arbitration Regulations during the transition period. Those dealers who opt to join the DRC would be subject to its requirements.

Option 4 is preferred for the reasons outlined below.

Benefits and Costs

Benefits

Exempting DRC members from the Licensing and Arbitration Regulations would allow for a smooth transition from the current regulatory system to a voluntary, industry-driven system created in response to NAFTA Article 707.

The industry-run system would provide services that the Licensing and Arbitration Regulations cannot, thereby meeting the needs of Canada's produce industry more effectively.

Maintaining the existing program during a transition period would allow the DRC to become established while the services, with which the Canadian produce industry and its trading partners are familiar, are still in place.

Costs

The CFIA could face a revenue shortfall because of a decrease in the number of licences it issues. Licence fees negotiated with industry cover some of the costs of the federal Fresh Fruit and Vegetable Program, as well as the Licensing and Arbitration Program. This shortfall would be offset by the expenditure of fewer resources in these program areas, as the CFIA works with the industry to continue to identify more effective means of delivering the remaining portions of the Fresh Fruit and Vegetable Program and to determine a more accurate and appropriate manner of setting fees for services.

Other Impacts

Consumers should not be affected by this amendment and there is no anticipated impact on small retailers and growers who market their own products as these individuals are exempt from the requirements of the Licensing and Arbitration Regulations. This amendment gives all retailers and growers the opportunity to opt for membership in the DRC.

International Trade Agreements

These changes are in keeping with the Government's commitments under NAFTA Article 707, which directs the three countries to develop systems that achieve prompt, effective resolution of private commercial disputes regarding agricultural goods.

The establishment of a private dispute resolution corporation is consistent with Canada's trade commitments.

Consultation

In November 1998, the CHC and the CPMA conducted cross-country stakeholder meetings and workshops on the creation of a tri-national dispute resolution body. Meetings were held in the seven major markets: Vancouver, Calgary, Saskatoon, Winnipeg, Toronto, Montréal, and Moncton. The initiative was widely supported.

In August and September 1999, the CHC and the CPMA continued these meetings and as the consultations concluded, members strongly supported the formation of the DRC. As well, the industry indicated the need for a transition period, wherein the requirements of the DRC and of the Licensing and Arbitration Regulations would run concurrently to facilitate a smooth, orderly passage to an industry-run program.

Representatives from the grower, shipper, wholesaler, retail, and food-service components of the produce industry attended these meetings.

Officials from the CFIA and Agriculture and Agri-Food Canada were consulted and have participated in the development of the proposed DRC.

United States officials responsible for the Perishable Agricultural Commodities Act, the American counterpart of Canada's Licensing and Arbitration Regulations, were also advised of the proposed amendments. There were no unfavourable responses.

Information letters outlining and explaining this regulatory change will be sent to provincial governments.

During the pre-publication period, direct mail-outs explaining the proposed amendment will be sent to all federal licence holders.

Compliance and Enforcement

The DRC has committed to work with the CFIA so that federal officials may determine who is exempt from these Regulations in order to take enforcement actions when a dealer is operating without either a DRC membership or a valid CFIA-issued licence. The CFIA will take enforcement action as necessary under the provisions of the Act and Regulations.

Contact

D. Bryanton, Director, Food of Plant Origin Division, Canadian Food Inspection Agency, 59 Camelot Drive, Nepean, Ontario K1A 0Y9, (613) 225-2342, extension 4147 (Telephone), (613) 228-6632 (Facsimile).

PROPOSED REGULATORY TEXT

Notice is hereby given that the Governor in Council, pursuant to section 32 of the Canada Agricultural Products Act(see footnote a), proposes to make the annexed Regulations Amending the Licensing and Arbitration Regulations.

Interested person may make representations with respect to the proposed Regulations within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to D. Bryanton, Director, Food of Plant Origin Division, Canadian Food Inspection Agency, 59 Camelot Dr., Nepean, Ontario K1A 0Y9. (Tel.: (613) 225-2342, ext. 4147; Fax: (613) 228-6632.

Ottawa, December 16, 1999

MARC O'SULLIVAN
Assistant Clerk of the Privy Council

REGULATIONS AMENDING THE LICENSING AND ARBITRATION REGULATIONS

AMENDMENT

1. Section 2.01 of the Licensing and Arbitration Regulations(see footnote 1) is amended by striking out the word "or" at the end of paragraph (c), by adding the word "or" at the end of paragraph (d) and by adding the following after paragraph (d):

(e) are members of the Fruit and Vegetable Dispute Resolution Corporation — a corporation incorporated under Part II of the Canada Corporations Act, being chapter C-32 of the Revised Statutes of Canada, 1970 — in accordance with the by-laws of that Corporation.

COMING INTO FORCE

2. These Regulations come into force on the day on which they are registered.

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Footnote a

R.S., c. 20 (4th Supp.)

Footnote 1

SOR/84-432

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