Feds propose extension of mandatory Bank Act review to 2019

The federal government said Tuesday it is proposing to extend by two years the mandatory review of the Bank Act, which prohibits financial institutions from selling home and auto insurance in their branches. Finance Minister Bill Morneau is also proposing a bail-in plan in the event of the failure of a systemically important bank.

In its budget document for 2016-17, the ruling Liberals said they propose “to provide the Department of Finance with $4.2 million over five years, starting in 2016-17, and to extend the current statutory sunset date by two years to March 29, 2019.”

Federal laws governing financial institutions “contain sunset provisions mandating renewal of banking and insurance legislation by Parliament every five years, providing an opportunity to examine the legislative and regulatory framework in light of emerging trends and developments, to ensure it remains robust and technically sound,” the federal government said Tuesday in the budget document.

“It seems like the government wants to do a thorough and proper review on how Canadians and all communities are served by the banks and insurers,” wrote Steve Masnyk, manager of public affairs for the Insurance Brokers Association of Canada (IBAC), in an e-mail Wednesday to Canadian Underwriter.

“We are confident that the review will culminate with the notion that in the interests of all Canadians, credit granting institutions ought not to be selling insurance at the point of granting credit,” Masnyk added.

Banks in Canada are “authorized” to sell eight types of insurance: credit or charge card-related, creditors’ disability, creditors’ life, creditors’ loss of employment, creditors’ vehicle inventory, export credit, mortgage and travel.

Other types of insurance – including home and auto – are not permitted to be sold through bank branches. Since 2012, that prohibition has also applied to websites. Banks are allowed to sell home and auto insurance through subsidiaries but they are not allowed to provide access, from their web pages, to other web pages through which non-authorized types of insurance are sold.

These restrictions were a topic of discussion at the last annual members’ meeting of the Insurance Brokers Association of Ontario, held during the IBAO annual convention Oct. 21, 2015 at the Sheraton Centre in Toronto.

“We will continue to champion the ability for our consumers to manage risk and buy insurance free from influence and coercion from the banks and credit unions,” said Michael Brattman, IBAO’s president in 2015, at the members’ meeting. “We know that this is the solution that is in the best interest of our consumers and we will continue to advocate on behalf of consumers’ rights.”

Toronto Dominion Bank writes home and auto through Meloche Monnex Inc.

Canada’s largest bank by revenue – the Royal Bank of Canada – writes P&C insurance through RBC General Insurance. Aviva Canada Inc. announced Jan. 21 it agreed to acquire RBC General for $582 million, subject to regulatory approval and other closing conditions.

The Canadian Imperial Bank of Commerce and the Bank of Nova Scotia sell home and auto insurance underwritten by subsidiaries of Desjardins Group. The Bank of Montreal does not sell either home or auto. When asked in May, 2015, by Canadian Underwriter, whether BMO has any plans to sell P&C, a BMO spokesperson replied: “We’re pleased with our current portfolio of insurance offerings and at this time have nothing further to share with regards to any new product launches.”

In its budget document for 2016-17, the federal government also said Tuesday it “is proposing to implement a bail-in regime” for banks in the event of “large” bank failure.

Such a regime “would allow authorities to convert eligible long-term debt of a failing systemically important bank into common shares to recapitalize the bank and allow it to remain open and operating,” the finance department stated. “Such a measure is in line with international efforts to address the potential risks to the financial system and broader economy of institutions perceived as ‘too-big-to-fail.'”

The government is projecting to spend $317.1 billion in 2016-17 (including $25.7 billion in debt charges) and to take in $287.7 billion in revenue, for a deficit of $29.4 billion. The federal government estimates its deficit for the fiscal year ending March 31, 2016 will be $5.4 billion.

“Public debt charges are projected to increase from $25.7 billion in 2015-16 to $35.5 billion in 2020-21, due to a projected rise in interest rates over the forecast horizon and a higher anticipated stock of interest-bearing debt, reflecting an increase in borrowing requirements,” the government said in its 2016-17 budget document. The annual budget deficits are projected at $29 billion in 2017-18, $22.8 billion in 2018-19, $17.7 billion in 2019-20 and $14.3 billion in 2020-21.

The total market debt (which was $649 billion 2014-15) is projected to reach $706 billion by the end of 2016-17 and $732.5 billion by March 31, 2021.

Total transfers to provinces are projected at nearly $71 billion in 2016-17, of which $36 billion is the Canada Health transfer (of which $13.9 billion will go to the Ontario government.) Another projected transfer in 2016-17 is $13.348 billion in the Canada social transfer, $5.1 billion of which will go to Ontario. There are also $17.88 billion in equalization payments projected in the fiscal year starting April 1, of which $10 billion will go to Quebec, $2.3 billion to Ontario and $1.7 billion each to Manitoba, New Brunswick and Nova Scotia, as well as $380 million to Prince Edward Island.