ARCHIVED — By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law

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Vol. 145, No. 1 — January 5, 2011

Registration

SOR/2010-307 December 15, 2010

CANADA DEPOSIT INSURANCE CORPORATION ACT

The Minister of Finance, pursuant to subsection 21(3) (see footnote a) of the Canada Deposit Insurance Corporation Act (see footnote b), hereby approves the annexed By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law, made by the Board of Directors of the Canada Deposit Insurance Corporation.

Ottawa, December 14, 2010

JAMES M. FLAHERTY
Minister of Finance

The Board of Directors of the Canada Deposit Insurance Corporation, pursuant to paragraph 11(2)(g) (see footnote c) and subsection 21(2) (see footnote d) of the Canada Deposit Insurance Corporation Act (see footnote e), hereby makes the annexed By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law.

Ottawa, December 8, 2010

BY-LAW AMENDING THE CANADA DEPOSIT INSURANCE
CORPORATION DIFFERENTIAL PREMIUMS BY-LAW

AMENDMENTS

1. Subsection 1(1) of the Canada Deposit Insurance Corporation Differential Premiums By-law (see footnote 1) is amended by adding the following in alphabetical order:

“Data Requirements By-law” means the Canada Deposit Insurance Corporation Data and System Requirements By-law. (Règlement administratif sur les exigences en matière de données)

2. The By-law is amended by adding the following after section 4:

DATA REQUIREMENTS ADJUSTMENT

4.1 The reference to “A × B × C” in paragraph 4(1)(b) shall be read as a reference to “(A × B × C) – (B × 0.015%)” for the premium year beginning on May 1, 2012 in respect of a member institution

(a) that

(i) certifies in the Reporting Form for the 2012 filing year that it complies with subsections 3(1) and 4(1), (3), (4) and (5) of the Data Requirements By-law, or

(ii) provides the Corporation with a declaration not later than June 30, 2012 that it complies with those provisions of that By-law; and

(b) provides or makes available to the Corporation the standardized data or the evidence referred to in subsection 5(1) of the Data Requirements By-law, or both, as requested by the Corporation.

3. Section 7 of the By-law is amended by adding the following after subsection (3):

(4) Despite subsection (1), a member institution referred to in that subsection shall be classified in premium category 2 as set out in column 1 of Schedule 1 if it is not in compliance with the Data Requirements By-law within 18 months after the day on which it becomes a member institution.

4. The By-law is amended by adding the following after section 8:

8.1 (1) Subject to subsections 8.2(2) and (3), for any premium year that begins after 2013, a member institution, other than one classified in accordance with section 7, that was not in compliance with the Data Requirements By-law as of April 30 of the preceding premium year shall

(a) if it would otherwise be classified in premium category 1 for the premium year in question, be classified in premium category 2;

(b) if it would otherwise be classified in premium category 2 for the premium year in question, be classified in premium category 3; and

(c) if it would otherwise be classified in premium category 3 or 4 for the premium year in question, be classified in premium category 4.

(2) Subject to subsection 8.2(3), for any premium year that begins after 2014, a member institution, other than one classified in accordance with section 7, that was not in compliance with the Data Requirements By-law as of April 30 of each of the two preceding premium years shall

(a) if it would otherwise be classified in premium category 1 for the premium year in question, be classified in premium category 3; and

(b) if it would otherwise be classified in premium category 2, 3 or 4 for the premium year in question, be classified in premium category 4.

(3) For any premium year that begins after 2015, a member institution, other than one classified in accordance with section 7, that was not in compliance with the Data Requirements By-law as of April 30 of each of the three preceding premium years shall be classified in premium category 4, and, for each subsequent premium year during which it is not in compliance with that By-law, it shall also be classified in premium category 4.

8.2 (1) For the premium year that begins in 2013, a member institution, other than one classified in accordance with section 7, that was not in compliance with the Data Requirements By-law as of June 30, 2013 shall

(a) if it would otherwise be classified in premium category 1 for that premium year, be classified in premium category 2;

(b) if it would otherwise be classified in premium category 2 for that premium year, be classified in premium category 3; and

(c) if it would otherwise be classified in premium category 3 or 4 for that premium year, be classified in premium category 4.

(2) For the premium year that begins in 2014, a member institution, other than one classified in accordance with section 7, that was not in compliance with the Data Requirements By-law as of June 30, 2013 and April 30, 2014 shall

(a) if it would otherwise be classified in premium category 1 for that premium year, be classified in premium category 3; and

(b) if it would otherwise be classified in premium category 2, 3 or 4 for that premium year, be classified in premium category 4.

(3) For the premium year that begins in 2015, a member institution, other than one classified in accordance with section 7, that was not in compliance with the Data Requirements By-law as of June 30, 2013, April 30, 2014 and April 30, 2015 shall be classified in premium category 4, and, for each subsequent premium year during which it is not in compliance with that By-law, it shall also be classified in premium category 4.

5. Subsection 14(2) of the By-law is replaced by the following:

(2) If the Corporation reviews the classification of a member institution based on information in respect of the institution that has come to its attention, including new or supplementary information submitted by the institution, and, as a result of that review, classifies the institution in a different premium category, the Corporation shall as soon as feasible notify the institution of that change.

(3) If the Corporation reviews the adjusted formula that applies in respect of a member institution referred to in section 4.1 based on information in respect of the institution that has come to its attention, including new or supplementary information submitted by the institution, and, as a result of that review, concludes that the applicable formula is the one referred to in section 4, the Corporation shall as soon as feasible notify the institution of that change.

6. The portion of section 17 of the By-law before paragraph (a) is replaced by the following:

17. Except with respect to the Certification Relating to the Canada Deposit Insurance Corporation Data and System Requirements By-law set out at the end of the Reporting Form, section 15 does not apply to a member institution

7. Element 6.3 of item 6 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law is replaced by the following:

6.3 Unrealized Losses on Securities
Indicate the unrealized losses on investment book securities set out in the column “Total” for item 6 (Unrealized gain/loss on investment book securities) of Section I — Memo Items of the Consolidated Monthly Balance Sheet. If the result is a gain, report “zero”.

8. The portions of the second and third items of Table 6A of item 6 of the Reporting Form set out in Part 2 of Schedule 2 to the English version of the By-law are amended by replacing “contingents” with “contingencies”.

9. (1) The portion of item 7 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law under the heading “Assets for Years 1 to 4” is amended by replacing the expression “For fiscal years ending in 2009 or later, the total of” before the third paragraph (a) with the following:

For fiscal years ending in 2009, the total of

(2) The portion of item 7 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law under the heading “Assets for Years 1 to 4” is amended by adding the following before the reference to “Year 1:”:

For fiscal years ending in 2010 or later, the total of

(a) the amount of net on- and off-balance sheet assets set out for item “O” of Schedule 1 – Ratio and Assets to Capital Multiple Calculations of the BCAR form;

(b) the total of the amounts set out in the column “Total” for items 1(a)(i)(A)(I) to (IX) (Securitized Assets — Unrecognized — Institution’s own assets — Traditional securitizations) of Section I — Memo Items of the Consolidated Monthly Balance Sheet; and

(c) if applicable, the value of assets, acquired by the member institution in the fiscal year ending in the year preceding the filing year as a result of a merger or acquisition referred to in the fourth paragraph under the heading “THREE-YEAR MOVING AVERAGE ASSET GROWTH (%)”, for years 1, 2 and 3 below, where the value of those assets on the date of their acquisition exceeds 10% of the value of the consolidated assets of the member institution immediately before that merger or acquisition.

10. Paragraphs (a) and (b) under the heading “Real Estate Under Power of Sale or Foreclosed Properties” in item 8 of the Reporting Form set out in Part 2 of Schedule 2 to the By-law are replaced by the following:

(a) for foreclosed properties located in Canada, the amount set out in the column “Total” for item 3(a) (Foreclosed long-lived assets acquired in the liquidation of a loan — held for sale) of Section I — Memo Items of the Consolidated Monthly Balance Sheet; and

(b) for real estate under power of sale, the amount set out in the column “Total” for item 4 (Power of Sale Loans related to Real Estate) of Section I — Memo Items of the Consolidated Monthly Balance Sheet.

11. The Reporting Form set out in Part 2 of Schedule 2 to the By-law is amended by adding the following after the Certification set out at the end of the Reporting Form:

Certification Relating to the Canada Deposit Insurance Corporation Data and System Requirements By-law

______________________, an authorized officer of
Name of Individual

______________________
Name of Member Institution

hereby certifies that the Member Institution, on or before the filing date of this Reporting Form,

_____________ meets

_____________ does not meet

the requirements of subsections 3(1) and 4(1), (3), (4) and (5) of the Canada Deposit Insurance Corporation Data and System Requirements By-law.

COMING INTO FORCE

12. This By-law comes into force on January 1, 2011, but if it is registered after that day, it comes into force on the day on which it is registered.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the By-law.)

Description

The Board of Directors of the Canada Deposit Insurance Corporation (“CDIC”) made the Differential Premiums By-law on March 3, 1999, pursuant to subsection 21(2) and paragraph 11(2)(g) of the Canada Deposit Insurance Corporation Act (CDIC Act). Subsection 21(2) of the CDIC Act authorizes the CDIC Board of Directors to make by-laws establishing a system of classifying member institutions into different categories, setting out the criteria or factors CDIC will consider in classifying members into categories, establishing the procedures CDIC will follow in classifying members, and fixing the amount of, or providing a manner of determining the amount of, the annual premium applicable to each category. The CDIC Board of Directors has amended the Differential Premiums By-law on January 12 and December 6, 2000, July 26, 2001, March 7, 2002, March 3, 2004, February 9 and April 15, 2005, February 8, 2006, December 6, 2006, December 3, 2008, and December 2, 2009.

Pursuant to recent amendments to the CDIC Act, CDIC will require member institutions to implement methods of identifying, capturing, organizing and producing deposit liability data, including certain functionality with respect to limiting and resuming access to deposit liabilities. The requirements are contained in the Canada Deposit Insurance Corporation Data and System Requirements By-law (Data Requirements By-law) that was made by the CDIC Board of Directors on December 8, 2010. The Data Requirements must be in place no later than June 30, 2013. The By-law Amending the Canada Deposit Insurance Corporation Differential Premiums By-law (Amending By-law), also made by the CDIC Board of Directors on December 8, 2010, introduces a premium reduction for those member institutions that implement the requirements of the Data Requirements By-law on or before June 30, 2012. The Amending By-law also provides that after June 30, 2013, where a member institution is not in compliance with the Data Requirements By-law, the member will be classified in a worse category under the Differential Premiums By-law. Members already in the worst category will not be affected.

In addition, CDIC annually reviews the Differential Premiums By-law to ensure that it remains up-to-date. As a result of the review, technical amendments needed to be made to Schedule 2 Part 2 Reporting Form (Reporting Form) to reflect changes to regulatory forms. The changes are reflected in the Amending By-law.

The following table provides more detail about the amendments and highlights the differences between the Amending By-law and the proposed Amending By-law pre-published on October 16, 2010, in the Canada Gazette, Part I:

AMENDING BY-LAW SECTION(S)

EXPLANATION

 

By-law

 1

Substantive: Adds definition for “Data and System Requirements By-law”.

 2

Substantive: Adds new Section 4.1. This section alters the formula for calculation of premiums payable such that the premiums in 2012 are reduced by 1.5 basis points of insured deposits if the institution implements the data requirements by June 30, 2012. [Change from pre-publication: Date extended from April 30 to June 30.]

 3

Substantive: Adds new subsection 7(3) to clarify that new member institutions will be classified in a worse category if they do not implement the data requirements within 18 months of becoming a member institution. [Change from pre-publication: This is a new provision.]

 4

Substantive: Adds new sections 8.1 and 8.2. Section 8.1 puts in place the general rule that after June 30, 2013, if a member is not in compliance with the Data and System Requirements By-law, its classification will be altered to a worse category (e.g. otherwise category 1 will be classified in category 2). If the member is in non-compliance with the Data and System Requirements By-law for two consecutive years after 2013, it will be reclassified by two categories (otherwise category 1 will be classified in category 3). The same approach is used for three or more consecutive years of non-compliance. For those members already classified in category 4 (the worst category), there is no impact. Section 8.2 applies the same process of classification as section 8.1 but deems non-compliance with the Data and System Requirements By-law as of June 30, 2013 as non-compliance for purposes of the 2013 premium year classification. [Change from pre-publication: the name of the Data and System Requirements By-law was changed throughout, and new member institutions were excluded from the application of sections 8.1 and 8.2 since the new section 7(3) addresses new member reclassification.]

 5

Technical: Amends subsection 14(2) by replacing the word “Where” with “If” and the word “practicable” with the word “feasible”.

Substantive: Adds new subsection 14(3). In the event that information comes to the attention of CDIC that permits it to conclude that the certification that the member is compliant with the Data and System Requirements By-law is incorrect, the new subsection permits CDIC to reverse the premium reduction permitted under the new section 4.1.

 6

Substantive: Amends section 17 to clarify that each member institution (i.e. parent and subsidiary) can certify as to compliance with the Data and System Requirements By-law in the Reporting Form, not only the member institution required to file the Reporting Form (i.e. parent). [Change from pre-publication: This is a new provision.]

 

Schedule 2, Part 2, REPORTING FORM

 7

Technical: Element 6.3 of Item Net Impaired Assets.

  • Line reference in the Consolidated Statement of Income, Retained Earnings and AOCI (Income Statement) to Unrealized gain/loss on investment book securities has changed.

 8

Technical: Table 6A of item 6, English version only:

  • Word “contingents” replaced by the word “contingencies”.

 9

Technical: Elements of Item 7 Three-Year Moving Average Asset Growth (%).

  • References to the Capital Adequacy Reports (CAR) forms are maintained for this element but are only applicable to 2007.
  • Since this element uses four years of asset data, the measure has been modified such that for 2007, the data is taken from the CAR forms whereas for the years 2008 and later, the data is taken from the Basel Capital Adequacy Reports (BCAR) forms in effect for the specific year. In order to accommodate 2010, a new description needed to be introduced.

10

Technical: Paragraphs (a) and (b) under the heading “Real Estate Under Power of Sale or Foreclosed Properties” in Item 8 Real Estate Asset Concentration.

  • Line references in the Consolidated Monthly Balance Sheet (Balance Sheet) changed for: foreclosed long-lived assets acquired in the liquidation of a loan —held for sale; and power of sale loans related to real estate.

11

Substantive: introduces a separate certification by an authorized signing officer of the member institution with respect to the implementation of the Data and System Requirements By-law.

Alternatives

There are no available alternatives. The CDIC Act specifically provides that the criteria or factors to be taken into account in determining the category in which a member institution is classified and fixing or establishing the method of determining the amount of the annual premium applicable to each category may only be made by by-law.

Benefits and costs

No additional costs should be attributed directly to these changes.

Consultation

Consultation has been extensive over the last year with member institutions and the Canadian Bankers Association with respect to the introduction of the Data and System Requirements By-law. The substantive changes being made to the Differential Premiums By-law relate directly to that consultative process, including the reduction in premiums for early implementation on or before June 30, 2012. Member institutions were notified directly about the proposed changes to the Differential Premiums By-law. Pre-publication took place on October 16, 2010, providing for a 30-day comment period. This was the final consultative step being taken. The change made to extend the early implementation period to June 30, 2012 from April 30, 2012 to benefit from a premium reduction was in response to comments received. No other changes were deemed necessary as a result of the comments received. With respect to the changes that are technical in nature, only consultation through pre-publication in the Canada Gazette, Part I, was necessary and no comments were received with respect to the technical changes.

Compliance and enforcement

There are no compliance or enforcement issues other than members will be required to annually report to CDIC compliance with the Data and System Requirements By-law.

Contact

Sandra Chisholm
Director, Insurance
Canada Deposit Insurance Corporation
50 O’Connor Street, 17th Floor
Ottawa, Ontario
K1P 5W5
Telephone: 613-943-1976
Fax: 613-992-8219
Email: schisholm@cdic.ca

Footnote a
S.C. 1996, c. 6, s. 27

Footnote b
R.S., c. C-3

Footnote c
R.S., c. 18 (3rd Supp.), s. 51

Footnote d
S.C. 1996, c. 6, s. 27

Footnote e
R.S., c. C-3

Footnote 1
SOR/99-120