Office of the Superintendent of Financial Institutions (OSFI), Financial Services Regulatory Authority of Ontario (FSRA), Autorité des marchés financiers (AMF), British Columbia Financial Services Authority (BCFSA), and Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) adjust regulations and guidance for banks, credit unions, financial intermediaries and other market participants.

Despite the challenges to the global economy and significant pressures on the financial sector, Canada's financial regulators continue to issue guidance explaining and expanding the regulatory requirements applicable to financial institutions.

Since the publication of our latest article on June 29, 2020,[1] there have been several updates published by federal and select provincial financial services regulators. These updates include notices specific to the economic conditions associated with COVID-19, as well as significant regulatory changes unrelated to COVID-19. In this article, we have compiled the key notices and set out links to the regulators' websites from up to and including August 10, 2020.[2]

The regulatory updates in July reflect an increased attention to money laundering, terrorist financing, and cyber security risks connected to the COVID-19 pandemic and related events.

The notices relate to the following sectors and categories:

Banks

  1. OSFI's Updated Key Measures for Federally Regulated Deposit-Taking Institutions

    On July 23, 2020, OSFI updated its published FAQs for federally regulated deposit-taking institutions about measures it has taken to address issues stemming from COVID-19.
  • Among other updates, OSFI provided various answers to questions regarding restrictions on dividends stemming from OSFI's March 13 announcement, advising that an increase in the total dollar amount of a preferred share dividend that is caused by a scheduled reset of the dividend rate after March 13, 2020, as specified in the contractual terms of the capital investment and not at the issuer's discretion, would be exempt from OSFI's expectations regarding dividend increases.
  • Please also refer to OSFI's published FAQs for federally regulated financial institutions (FRFIs), which was updated on May 28, 2020 to add questions regarding: (i) how much time a FRFI will have if OSFI grants it a filing extension request; and (ii) if regulatory filing extensions, or other relief, is only available for the regulatory information submitted via the Regulatory Return.

Insurance

  1. OSFI's Updated Key Measures for Federally Regulated Insurers

    On July 23, 2020, OSFI updated its published FAQs for federally regulated insurers about measures it has taken to address issues stemming from COVID-19.
  • Among other updates, OSFI provided various answers to questions regarding restrictions on dividends stemming from OSFI's March 13 announcement, advising that an increase in the total dollar amount of a preferred share dividend that is caused by a scheduled reset of the dividend rate after March 13, 2020, as specified in the contractual terms of the capital investment and not at the issuer's discretion, would be exempt from OSFI's expectations regarding dividend increases.
  1. Update on OSFI's Activities with respect to IFRS 17 – Insurance Contracts

    On August 7, 2020, OSFI published an update on OSFI's milestones and activities on the move to International Financial Reporting Standard 17 – Insurance Contracts.
  • OSFI will restart policy development work in the IFRS 17 Project, with extended deadlines. Specifically, the deadline for IFRS 17 Insurance Returns Public Consultation has been extended to August 31, 2020.
  • As noted in the letter issued by the IASB on June 25, 2020, the effective date for IFRS 17 has been deferred to January 1, 2023.
  • OSFI intends to finalize the LICAT/MCT/MICAT 2023 guidelines in 2022.

Mortgage brokers

  1. FSRA Launches Consultation on Supervision of Mortgage Brokers

    FSRA is focussing on identifying and reducing risks to consumers in the mortgage brokering sector.
  • On August 4, 2020, Financial Services Regulatory Authority ("FSRA") published a statement identifying four areas in the mortgage brokering sector where consumers are most vulnerable to harm.
  • Subsequently, on August 6, 2020, FSRA announced that it is consulting on proposed guidance outlining its approach for supervising mortgage brokers and administrators that are engaged in syndicated mortgage investments.

AML - FINTRAC Reporting Entities

  1. FINTRAC Special Bulleting on COVID-19

    On July 16, 2020, the Financial Transactions and Reports Analysis Centre of Canada ("FINTRAC") published a special bulletin on COVID-19 related money laundering trends and observations. In the bulletin, FINTRAC highlights some of the increased money laundering risks associated with the pandemic, including the increase in specific categories of fraud described below. FINTRAC suggests that reporting entities should be aware of, and consider making further inquiries when, transactions conducted by clients have the following characteristics:
  • The impact of COVID-19 is provided as an explanation for atypical transaction activity or failure to comply with requests for information;
  • Individuals conduct large currency exchanges for travel that is not plausible;
  • Large cash deposits where the source of funds is unclear;
  • The nature of business accounts involved are inconsistent with the pandemic (e.g. restaurants, gyms, bars, travel industry, etc.);
  • Unusual or suspicious transactions involving personal protective equipment or other high-demand supplies; or
  • Transactions or large cash withdrawals related to COVID-19 variations of fraud schemes (such as sales of fake testing kits, sometimes conducted using cryptocurrencies).
  1. FINTRAC Advisory on High-Risk Countries identified by the FATF

    On July 27, 2020, FINRAC issued an advisory on high-risk jurisdictions identified by the Financial Action Task Force (the "FATF"). Countries identified by FINTRAC as high risk will be subject to enhanced due diligence requirements pursuant to section 9.6(3) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act Since April 28, the FATF has paused the review process for the list of jurisdictions under increased monitoring.

    In connection with the FATF's recommendations, FINTRAC issued guidance related to the Ministerial Directive on Financial Transactions Associated with the Islamic Republic of Iran. The guidance requires every reporting entity to treat all financial transactions originating from or bound for Iran as high-risk for the purposes of subsection 9.6(3) of the PCMLTFA, and imposes additional enhanced due diligence and record-keeping requirements.
  1. Desk Examination resumption

    On July 27, 2020, FINTRAC communicated to reporting entities that it will be engaging with a number of entities to resume desk examinations in the coming weeks. The purpose of such examinations is to assess reporting entities' compliance program and the effectiveness of compliance measures. FINTRAC will consider the impact and challenges of COVID-19 when assessing overall compliance.

Sector Cyber Security Risks

  1. FINTRAC Special Bulletin on COVID-19
  • FINTRAC's special Bulletin identified increases in phishing scams, including "emails and text messages from criminals pretending to be linked to Employment Insurance benefits, Canada Emergency Response Benefit (CERB), the Public Health Agency of Canada or other businesses."
    • These messages entice readers to click links or attachments that either contain malware or redirect them to official-looking websites soliciting financial and / or personal information. Most reports involving identity fraud concern fraudulent applications for CERB payments.
  1. Chinese Banks Assisting Espionage
  • Trustwave reports that Chinese banks are requiring customers to use a software tax platform containing coding backdoors to allow hackers to access customer data. The software forms part of China's national Golden Tax Project. So far, two separate software packages mandated for the Project have been found to contain hidden backdoors allowing access.
  1. Bank Bans TikTok App
  • Wells Fargo has joined the list of major corporations banning employees from installing and using the TikTok social media app on company devices, citing privacy and security concerns about the app, citing concerns about possible use of the app for espionage by the Chinese government. The U.S. government is considering banning the use of the app by federal employees.
  1. Canada and Lloyd's of London in Discussions re: Insurance for "Black Swan" Events
  • The Department of Finance is exploring the possibility of a partnership with Lloyds' of London to create an insurance regime to plan for unlikely catastrophic events (such as the current pandemic). Under the contemplated model, Lloyd's would provide reinsurance to add a layer of protection against the economic impacts of such events, so that government spending would not be the first and only source of aid. The talks follow the release of a white paper by Lloyds' on insuring systemic risks.

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.

[2] Please note that while this article outlines some of the key takeaways from the notices published by the listed regulators up until July 10, 2020, it is not an exhaustive list or analysis. Please refer to the full notices on the regulators' websites for a complete list of the revisions.