Canadian financial regulatory responses to COVID-19

Canada's financial regulators have advised that they are reviewing and temporarily revising certain regulatory requirements for financial institutions and stakeholders during this time.

Our articles from March 19, 2020, April 6, 2020 and April 16, 2020 set out the key takeaways from the notices published to that date by these federal and provincial/territorial regulators.

Since the publication of the latest article, there have been significant notices published by federal and select provincial financial services regulators. In this fourth article, we have compiled the key notices and set out links to the regulators' websites from up to and including May 11, 2020.^[1]

The notices have been set out by the following sectors:

• Banks
• Credit Unions
• Insurance
• Pensions
• AML and Reporting Entities

Banks

1. OSFI's Expectations on Capital Management for Federally Regulated Banks and Deposit-Taking Institutions

On May 1, 2020, OSFI provided guidance on its expectations surrounding capital management for deposit-taking institutions, such as banks.

• OSFI clarified that all deposit-taking institutions are able to use Pillar II capital buffers during this time to operate below their internal capital targets – including those using the Standardized Approach to credit risk. All deposit-taking institutions should first discuss doing so with their designated Lead Supervisor.
  • Pillar II capital buffers are institution-specific, and for domestic systemically important banks, it includes the Domestic Stability Buffer.
• OSFI also provided guidance on the considerations for deposit-taking institutions regarding the appropriateness of their capital management actions in the current environment. These include considering: (i) capital conservation actions; (ii) how the deposit-taking institution expects to manage its risks and restore capital; (iii) stress testing information; and (iv) protecting depositors and other creditors.
• On April 30, 2020, OSFI also posted additional FAQs related to the use of capital buffers and prudent capital management.

2. OSFI's FAQs for Federally Regulated Deposit-Taking Institutions

On May 7, 2020, OSFI published various questions and answers for federally regulated deposit-taking institutions about measures it has taken to address issues stemming from COVID-19.

• Topics addressed include: (i) capital; (ii) payment deferrals; (iii) expected credit loss capital treatment; (iv) disclosure expectations for expected credit loss transitional arrangements; (v) market risk; (vi) leverage ratio; (vii) margin requirements; (viii) domestic implementation of Basel III; (ix) small and medium-sized bank proportionality initiative; (x) liquidity; (xi) interest rate risk in the banking book; (xii) covered bonds; (xiii) foreign bank braches; and (xix) macro stress testing.
• For further information on these topics, please also consult the April 17, 2020 statement from OSFI's Superintendent.

Credit Unions

1. Guidance issued for British Columbia Credit Unions

On April 16, 2020, the British Columbia Financial Services Authority ("BCFSA") issued a letter addressed to British Columbia credit unions. The letter provides information relating the capital treatment and regulatory reporting requirements for loans that qualify under the Business Credit Availability Program ("BCAP").

• Loans issued by British Columbia credit unions pursuant to BCAP are required to be reported to the BCFSA and risk-weighted as detailed in the letter.

Insurance

1. OSFI's FAQs for Federally Regulated Insurers

On April 30, 2020, OSFI published various questions and answers for federally regulated insurers about measures it has taken to address issues stemming from COVID-19.

• Topics addressed include: (i) loan payment deferrals; (ii) premium payment deferrals; (iii) capital management; (iv) LICAT smoothing of interest risk rate requirements for participating insurance; (v) IFRS 9; (vi) suspension of consultations and policy development; (vii) regulatory filing flexibility; (viii) restrictions on dividends and share buybacks; and, (ix) margin requirements for non-centrally cleared derivatives.

2. Extension for deadline to renew insurance agency licenses

On April 27, 2020, the Financial Services Regulatory Authority of Ontario ("FSRA") announced that the deadline for insurance agents to renew their licenses has been extended to 60 days after the expiry date.

• This extension is retroactive to March 15, meaning that any insurance agent whose insurance license expires between March 15, 2020 and June 30, 2020 will receive a 60-day extension.
• Life insurance agents will also have a 60-day extension to complete their continuing education requirements.

3. Guidance for Ontario Insurers Regarding Auto Insurance

On April 15, 2020, FSRA issued guidance for insurers providing emergency relief to auto insurance consumers.

• FSRA's position is that an insurance premium repayment program which adheres to prescribed principles does not constitute an unfair or deceptive practice. Where possible, insurers should inform FSRA of such programs prior to implementation.
• FSRA will accept Emergency Relief Rate Filings that meet the eligibility criteria as set out in the guidance.
• FSRA encourages insurers to consider available measures to assist auto insurance consumers and to maintain records of all actions taken.

Pensions

1. OSFI Revises Federally Regulated Private Pension Plan Directives

On May 7, 2020, OSFI revised the Directives of the Superintendent pursuant to the Pension Benefits Standards Act, 1985 (the "Directives").

• OSFI revised the Directives to ease restrictions on portability for members who are within 10 years of meeting their plan's requirements for an unreduced pension, and therefore eligible for early retirement. The changes do not affect members who have not yet reached that point.

• Please refer to question 4 in OSFI's FAQs for more information on the changes that were made.

• Administrators may still request the Superintendent's consent for other transfers or annuity purchases based on plan-specific or special circumstances.

2. OSFI's FAQs for Federally Regulated Private Pension Plans

On May 7, 2020, OSFI published various questions and answers for federally regulated pension plans about measures it has taken to address issues stemming from COVID-19.

• Topics addressed include: (i) portability freezes; (ii) deadline extensions; and (iii) other measures.

3. FSRA Pension Sector Emergency Management Response Guidance

On April 24, 2020, FSRA issued guidance responding to questions received from pension sector stakeholders relating to the COVID19 pandemic.

• Topics addressed include: (i) FSRA's discretion to proceed with urgent proceedings; (ii) deadline extensions for plan administrators; (iii) deterioration of transfer ratios; (iv) delays processing of applications by FSRA; (v) reporting requirements; (vi) electronic submission of documents; and (vii) other measures.

AML and reporting entities

1. FATF proposes best practises and responses to new ML/TF threats and vulnerabilities arising from the COVID-19

On May 4, 2020, FATF published a paper that identifies heightened risks of ML/TF as a result of the COVID-19 pandemic including the misuse of online financial services and virtual assets to move and conceal illicit funds and the exploitation of economic stimulus measures and insolvency schemes. The FATF recommends the following AML/CTF policy responses to such risks:

• Domestic coordination to assess the impact of COVID-19 on AML/CFT risks and systems;
• Strengthened communication with the private sector;
• Encouraging the full use of a risk-based approach to customer due diligence; and
• Supporting electronic and digital payment options.

Conclusion

If you have any questions as to how these regulatory changes may impact your organization's obligations, please contact your Gowling WLG professional. Our Financial Services Regulatory Team at Gowling WLG will continue to keep you informed as further developments arise.

For other COVID-19 related resources, please visit our resource page with information to help clients manage their business during the pandemic. The page contains critical information to guide you through various complex legal issues, as well as a list of key contacts who can provide advice on these issues.